-38-
“represent actual unpaid losses as nearly as it is possible to
ascertain them.” Sec. 1.832-4(a)(5), Income Tax Regs.; see
Hanover v. Commissioner, 69 T.C. at 270.
3. Significance of Actuarial Certification and
State Review or Lack Thereof
For each of the years in issue, Witcraft’s and Teufel’s
actuarial reports certify that petitioner’s unpaid loss reserves
make reasonable provision for petitioner’s unpaid losses and
loss expenses. The record does not establish, however, that
this certification was meant to be equivalent to the regulatory
requirement that petitioner’s reserves be “fair and reasonable”
within the meaning of section 1.832-4(b), Income Tax Regs.
Given the wide variance between petitioner’s carried reserves
and the appointed actuaries’ best estimates, it is unclear that
any such equivalence was intended. Indeed, because Teufel and
Witcraft each anticipated that their opinions would
be reviewed by the State regulator,27 it would appear likely that
their focus was on conservatism and petitioner’s solvency.
For 1993, the department reviewed petitioner’s reserves and
determined that they were “adequate”. For 1994 and 1995, the
department accepted petitioner's filing of the annual statements
without any adjustments. Although this is a positive factor in
evaluating the fairness and reasonableness of petitioner’s
27 Each of the Teufel opinions states: “This statement of
opinion is intended solely for filing with state regulatory
agencies.” The Witcraft opinion contains a similar statement.
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