Minnesota Lawyers Mutual Insurance Company and Subsidiaries - Page 12

            adverse development reserve.  The adverse development reserve is                           
            established by its CEO and president, Joseph H. Bixler (Bixler),                           
            and its controller to address the possibility that the reserves                            
            set by the claim department might be understated because of the                            
            discovery of new information or unforeseeable events.  This                                
            reserve is a “bulk” reserve rather than one calculated case by                             
            case.9  For the years in issue, the adverse development                                    
            reserves, when added to petitioner’s case reserves, increased                              
            petitioner’s total unpaid loss reserves by amounts ranging from                            
            about 37 percent to about 50 percent.                                                      
                  For estimated claims under $100,000, the adverse                                     
            development reserve includes an amount that represents a                                   
            percentage of such claims.  The percentage varies from year to                             
            year and reflects at least an element of judgment or                                       
            subjectivity.  Petitioner operates under the principle that as                             
            the claims mature and more information is known about them, it                             
            can develop a higher expectation of accuracy on its case                                   
            reserve.  Consequently, in computing its adverse development                               
            reserve, petitioner includes a higher percentage of open claims                            
            from the most current claim year and a smaller percentage for                              
            each succeeding older year.  For each year in issue, petitioner                            

                  9 On its annual statement, petitioner’s adverse development                          
            reserve is labeled as “Bulk + IBNR”.  The term “IBNR” stands for                           
            “incurred but not reported”.  Petitioner did not compute an IBNR                           
            reserve because it considered only reported claims in its reserve                          

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Last modified: May 25, 2011