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experience had recently reversed course from unfavorable to
favorable, and where there was uncertainty about the credibility
of some of petitioner’s current data.25 Tillinghast’s use of
prior selections appears to be analogous to the so-called
lookback method that we found to be proper in Utah Med. Ins.
Association v. Commissioner, T.C. Memo. 1998-458.
In attacking Tillinghast’s use of prior selections,
respondent relies on the Kilbourne Co. report, which states that
“As a matter of actuarial science” Tillinghast’s reliance on
prior selections was not justified, especially given that
petitioner’s unpaid loss reserve redundancies were higher than
the industry norm. The general tenor of the Kilbourne Co. report
is adversarial toward Tillinghast, accusing Tillinghast of
consciously violating various actuarial precepts.26 Otto
testified that Tillinghast’s estimates reflected a conscious
25 Respondent makes much of the fact that Tillinghast gave
its prior selections greater weight in 1994 than in 1993. The
evidence shows, however, that the increased weight for prior
selections in 1994 was explained by facts specific to 1994,
including changes in petitioner’s incidence reporting and
restatements of petitioner’s data bases that caused Tillinghast
to have greater uncertainty about the integrity and credibility
of petitioner’s current data in 1994.
26 The Kilbourne Co. report states, for instance, that
Tillinghast “manipulated their actuarial methods through the
process of relying on ‘prior selections’ in a manner that cannot
be supported by the data.” Similarly, the Kilbourne Co. report
states that in making its actuarial estimates, “Tillinghast
introduced additional and extraneous calculations which we
believe we can show were intended to incorporate margins (i.e.
excessive amounts) into the unpaid losses.”
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