-18-
Bornhuetter-Ferguson method.15 The Teufel opinions state that
petitioner’s carried reserves meet the requirements of Minnesota
insurance laws, were computed in accordance with accepted loss
reserving principles and standards, and make reasonable
provision for all of petitioner’s unpaid loss and loss expense
obligations. In addition, Teufel’s 1994 and 1995 reports each
provide a range for petitioner’s unpaid loss reserves, as well
as recommended point estimates. For 1994, Teufel’s range for
reserves net of reinsurance extends from $7,956,093 to
$13,550,446, and her point estimate is $10,096,656. For 1995,
Teufel’s range is from $5,851,559 to $12,867,450, and her point
estimate is $8,706,428.
Reinsurance
During the years in issue, petitioner purchased reinsurance
coverage from reinsurance companies. Before July 19, 1994,
petitioner retained 100 percent of the insurance coverage for
claims up to $100,000, ceding to reinsurers all losses greater
than this amount. From July 19, 1994, to April 18, 1995,
petitioner increased its retention levels to include, in
addition to 100 percent retention of losses up to $100,000, 60
percent of losses greater than $100,000, up to $250,000. On
15 The Bornhuetter-Ferguson method is an actuarial technique
widely used for long-tailed lines of insurance like professional
malpractice. See Utah Med. Ins. Association v. Commissioner,
T.C. Memo. 1998-458.
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