-19-
April 19, 1996, petitioner again increased its retention levels
to include 15 percent of losses greater than $250,000, up to
$500,000.
In a newsletter to policyholders dated September 1996,
Bixler explained these changes in its reinsurance philosophy as
follows:
If certain reinsured layers are relatively predictable and
the company’s financial strength can readily absorb unusual
activity in those layers, then it may be advisable for the
company to retain that portion instead of buying
reinsurance on it. * * *
* * * [Petitioner] has pursued a strategy of surplus growth
and will soon achieve our immediate goal of $20,000,000.
Meanwhile, we have had the opportunity to observe the loss
activity in each band of risk and have found many of the
lower layers to be relatively stable under various
conditions over several years. Therefore, * * *
[petitioner] has progressively assumed a larger share of
risk on each claim over the past few years.
For annual statement purposes, petitioner’s unpaid loss
reserves were shown both gross and net of estimated reinsurance
proceeds recoverable. Similarly, petitioner’s appointed
actuaries computed both gross and net unpaid loss reserves but
netted out larger amounts of estimated reinsurance proceeds
recoverable than did petitioner.16 The differences in
petitioner’s estimates of reinsurance proceeds (as reflected on
schedule F of its annual statements) and the actuaries’
estimates (as indicated by the difference between the actuaries’
16 The record does not explain these variances.
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