-43-
incurred” within the meaning of section 832(b)(5), represent a
“fair and reasonable estimate of the amount the company will be
required to pay.” Sec. 1.832-4(b), Income Tax Regs.
B. Determination of Fair and Reasonable Unpaid Losses
for 1993
The analysis of respondent’s expert, Streff, was in key
respects similar to that of petitioner's appointed actuaries.
He testified that he agreed with the actuaries’ data and
techniques and disagreed only with their assumptions.
For taxable year 1993, we find Streff’s analysis and
conclusions to be credible. We accept as fair and reasonable
his $8,240,000 estimate of petitioner’s net unpaid losses as of
yearend 1993. We note that this estimate exceeds Witcraft’s
best net reserve estimate of $7,800,000, as well as the
$7,134,000 net reserve estimate determined in respondent’s
notice of deficiency.30
30 Streff’s 1993 estimate of petitioner’s net unpaid loss
reserve is lower than petitioner’s 1993 net carried case reserve
of $8,478,000. At first blush, this result may seem anomalous,
given respondent’s statement on brief that petitioner’s case
reserves are “at least facially” in compliance with the
regulatory requirement that unpaid losses be calculated “based on
the facts of each case.” Sec. 1.832-4(b), Income Tax Regs. We
do not interpret respondent’s statement on brief as a concession,
however, that petitioner’s net case reserves reflect a fair and
reasonable estimate of petitioner’s unpaid losses. Respondent’s
statement on brief appears to refer to petitioner’s estimate of
its gross unpaid losses and not to address possible effects of
proceeds recoverable through petitioner’s reinsurance
arrangements, which proceeds are taken into account in computing
losses incurred, within the meaning of sec. 832. See sec.
832(b)(5)(A)(iii). In this regard, we note that for each year in
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