-14-
estimates of losses turned out to be significantly higher than
actual losses. For example, petitioner's estimated loss reserve
for claims arising in 1995, as stated in its 1997 annual
statement, was $7,254,000, in contrast to the $12,500,000 that
was initially stated in its 1995 annual statement.12
Similarly, for each of the years in issue, petitioner’s
initial estimates of losses, stated as a percentage of premiums
earned for the year, turned out to be much higher than actual
losses. For example, as of the end of 1993, petitioner
estimated that it would pay out in net loss and loss expenses on
1993 claims 94.7 percent of the premiums earned for that year.
By the end of 1995 petitioner had revised that figure to 60
percent, and by the end of 1997 petitioner had further revised
that figure to 44.2 percent.13
12 Petitioner’s reserves for claims arising in the years
1993 through 1995, as originally reported and as adjusted as of
the time petitioner completed its 1997 annual statement, were as
follows:
As Originally As Estimated on
Year Reported 1997 Annual Statement
1993 $11,633,000 $4,934,000
1994 11,576,000 4,330,000
1995 12,490,000 7,254,000
13 The following table sets out petitioner's estimated
percentage of premiums earned that would be paid out in losses
and loss expenses, net of reinsurance, initially and as later
(continued...)
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