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Petitioner’s Actuaries
Petitioner employed no in-house actuary. Instead, beginning
in 1986 and continuing through the years in issue, petitioner
retained the firm of Tillinghast-Towers Perrin (Tillinghast) to
perform all its actuarial services, including estimation of its
unpaid losses as part of its reserve reports.
In the course of preparing its various actuarial reports and
analyses for petitioner, Tillinghast representatives met with
petitioner’s management and exchanged information periodically.
In analyzing petitioner’s unpaid losses, Tillinghast’s
techniques and methods changed over time as petitioner’s business
grew and matured. For the years 1987 through 1989, petitioner
lacked historical claims data, and so Tillinghast relied almost
exclusively on industry data to estimate petitioner’s unpaid
losses. Thereafter, it gradually increased its reliance on
petitioner’s data. For the years in issue, Tillinghast relied
heavily on petitioner’s data.
In 1991, Tillinghast began to use five specific actuarial
methods (the five methods) in estimating petitioner’s unpaid
losses.4 It relied upon the five methods consistently throughout
the years in issue.
4 The five specific actuarial methods (the five methods)
Tillinghast used were: (1) The Bornhuetter-Ferguson method
applied to incurred losses; (2) the Bornhuetter-Ferguson method
applied to paid losses; (3) the development method applied to
incurred losses; (4) the development method applied to paid
losses; and (5) rating model development.
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Last modified: May 25, 2011