Minnesota Lawyers Mutual Insurance Company and Subsidiaries - Page 13

            applied to open claims from the most current claim year a factor                           
            that was between roughly 35 and 45 percent; this factor was then                           
            reduced for each succeeding older claim year.10  For claims over                           
            $100,000, petitioner makes a separate and additional allowance                             
            in the adverse development reserve based not upon any percentage                           
            factor but rather upon a subjective assessment of the number of                            
            such losses and how much they might cost.11                                                
                  Petitioner's adverse development reserves for the years in                           
            issue were as follows:                                                                     
                                 Year              Amount                                              
                                 1993         $3,155,000                                               
                                 1994          3,748,000                                               
                                 1995          14,048,000                                              
                  1 For 1995, petitioner included in its adverse development reserve, for              
            the first time, an additional component, “unallocated loss expenses unpaid”,               
            in the amount of $532,000.                                                                 
            Petitioner’s Reserve Experience                                                            
                  For each of the years 1982 through 1985, petitioner's                                
            initial estimates of losses turned out to be lower than actual                             
            losses.  For each of the years 1986 through 1995, petitioner’s                             

                  10 For example, to compute the adverse development reserve                           
            for 1995, petitioner applied a factor of approximately 45 percent                          
            to its case reserve estimate for open 1995 claims, a factor of                             
            approximately 40 percent for open 1994 claims, a factor of                                 
            approximately 38 percent for open 1993 claims, and so on.  The                             
            adverse development reserve for 1995 is the sum of the separately                          
            computed adverse development reserve amounts for each year with                            
            open claims as of Dec. 31, 1995.                                                           
                  11 The record does not reveal the mechanics of this separate                         
            and additional allowance for claims over $100,000.                                         

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