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Petitioner then files its Federal income tax return.
For each of the years in issue, petitioner used on its
annual statement the same unpaid loss reserve estimate that it
presented to its appointed actuary for review and also used this
same estimate on its Federal income tax return.
Statements of Actuarial Opinion
Petitioner’s actuarial opinion for 1993 (the Witcraft
opinion) was prepared by Susan E. Witcraft (Witcraft) of
Milliman & Robertson, Inc. The Witcraft opinion states that
petitioner’s 1993 carried reserves met the requirements of the
insurance laws for the State of Minnesota; were computed in
accordance with the standards of practice issued by the
Actuarial Standards Board (including the Casualty Actuarial
Society's statement of principles regarding property and
casualty loss and loss adjustment expense reserves); and made
reasonable provision for all unpaid loss and loss expense
obligations.
In her actuary’s report, Witcraft explained that she had
projected ultimate losses using six methods: The paid loss
development method, the incurred loss development method (“both
unadjusted and adjusted for an apparent increase in reserve
adequacy”), the reserve development method (“both unadjusted and
adjusted for an apparent increase in reserve adequacy”), and the
average claim cost method. The report states that, on the basis
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