-41-
under various conditions over several years.”
Hayne’s expert report and testimony provide little basis
for assessing whether his peer-group ratio comparisons account
for possible differences in reserving, claim management, and
underwriting philosophies among the eight companies that he
selected for comparison, or whether those eight companies are in
fact the appropriate peer group.29
5. Other Factors
Citing Utah Med. Ins. Association v. Commissioner, T.C.
Memo. 1998-458, petitioner argues that a number of other factors
support the fairness and reasonableness of its estimates of
unpaid losses. Petitioner contends, for example, that it could
not offset reserve deficits with other reserve surpluses,
because it wrote primarily lawyer’s professional liability
insurance. During the years in issue, however, petitioner had,
at a minimum, a surplus of $14 million. In an April 1995 report
to policyholders, Bixler characterized petitioner’s surplus as
“an impressive safeguard against adversity.”
Petitioner also argues that it adjusted its loss reserve
each year to account for actual loss experience. The
development of petitioner’s case reserves from 1986 to 1992,
29 Hayne testified that in identifying his peer group, he
tried to “get as many of the small, localized, lawyer mutual type
companies that I could easily identify in insurance publications”
and that he located through electronic services. Best defines
petitioner’s peer group as the National Association of Bar
Related Insurance Companies (NABRICO). Hayne did not explain how
petitioner’s ratios compared to the NABRICO composite.
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