-33-
reserves for certain lines “in which the reserves otherwise
computed have historically proven inadequate.” The Commissioner
had argued that the voluntary loss reserves were greater than
historical deficiencies in the schedule P lines of coverage and
were intended to cover deficiencies in certain schedule O lines
of coverage. Rejecting the Commissioner’s arguments, we held
that the test of reasonableness should be directed at the total
unpaid loss reserves rather than at individual lines of
coverage, and that the taxpayer’s total estimated reserves were
not only reasonable but actually understated in light of prior
experience. See id. at 919-920.
In the instant case, by contrast, petitioner has not shown
that, for the years in issue, it established adverse development
reserves to ensure the adequacy of reserves that historical
experience had proved inadequate, or that its total reserves are
reasonable in light of prior experience. To the contrary, the
evidence strongly suggests that for each year in issue,
petitioner’s recent historical experience had proved
petitioner’s case reserves to be generous. For example,
petitioner’s own reserve analyses for the years in issue
indicate significant redundancies in its case reserves.
Petitioner’s appointed actuary noted that as of yearend 1993,
there was total “redundancy” in petitioner’s total booked net
loss reserve of $4,210,000–-which exceeds the $3,155,000 adverse
development reserve that petitioner established for 1993. The
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