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conducted a yearend audit of petitioner’s 1993 and 1994 financial
statements.
1993 Audit
In connection with the Coopers yearend 1993 audit of
petitioner’s financial statements, Coopers actuary Chris Nelson
(Nelson) reviewed a draft of Tillinghast’s 1993 report,
Tillinghast’s 1993 rate review, and certain underlying exposure
data from petitioner. On the basis of his review, Nelson
concluded that Tillinghast’s actuarial methodologies and
assumptions in estimating petitioner’s unpaid losses were
“appropriate and reasonable.” In addition, Nelson reviewed
petitioner’s carried unpaid losses for 1993. Nelson noted that
these carried unpaid losses were 9.9 percent above the
Tillinghast point estimate. Nelson concluded that this deviation
was acceptable from an actuarial perspective, indicating that a
reserve range of minus 5 percent to plus 10 percent was common
for Tillinghast analyses.
After consulting with Nelson, Coopers’s nonactuarial
auditors concluded that petitioner’s unpaid losses on its 1993
annual statement exceeded the range suggested under Coopers’s in-
house guidelines. These guidelines specified a mechanical
formula which the Coopers auditors used to test whether
petitioner’s recorded reserves were realistic and meaningful.
After further assessment, however, the Coopers auditors
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