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[Petitioner’s] loss * * * reserves fall within the
range established by Tillinghast of +10% of their best
point estimate.[6]
[Petitioner] is a relatively young company with
adequate, but not extremely significant, amounts of
historical results to assess the adequacy of loss
reserves.
[Petitioner] writes only medical malpractice liability
policies. This line is considered extremely volatile
and may be subject to significant swings in experience
between years.
A write-down of the current year reserves would effect
[sic] the Company’s trend in earnings. Management’s
incentive or bonus plans are not directly effected
[sic] by current year earnings.
The Company is not publicly traded and there is
currently no active market for the existing outstanding
shares.
A portion of the reserve redundancy is maintained to
offset potential tax exposure.
With regard to the last factor listed above, the Coopers
working paper noted that as a result of an audit of petitioner’s
1991 and 1992 tax returns, the Internal Revenue Service (IRS) had
proposed various adjustments, including adjustments arising from
a determination that petitioner’s loss reserves were excessive.
The Coopers working paper notes that for petitioner’s taxable
years 1991 and 1992, these proposed tax adjustments totaled
approximately $6.1 million.
6 This observation is unsupported by the evidence, which
does not indicate that Tillinghast ever “established” or
communicated the existence of any particular range around its
point estimates.
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