Minnesota Lawyers Mutual Insurance Company and Subsidiaries - Page 19

            April 19, 1996, petitioner again increased its retention levels                            
            to include 15 percent of losses greater than $250,000, up to                               
                  In a newsletter to policyholders dated September 1996,                               
            Bixler explained these changes in its reinsurance philosophy as                            
                  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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