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information had the same average monthly premiums regardless of
the type of benefit or whether the contracts constituted
community or experience-rated contracts.
Valuing approximately 40 percent of all of petitioner’s
group contracts (9,288 divided by 23,526 equals 40 percent) using
an average premium rate reflects the lack of contract-specific
information available to petitioner’s expert and the aggregate
valuation methodology used by petitioner’s expert.
Petitioner’s expert also assumed that for each of
petitioner’s health insurance group contracts in effect on
January 1, 1987, the average number and the makeup of the
individual members covered under each group contract would remain
constant throughout the 20-year useful life period that he used
for each contract. His assumption, however, was incorrect. For
example, after downsizing its business, one of petitioner’s
groups that was enrolled with petitioner in 1989 with 200 members
later reenrolled with petitioner in 1992 with a group size of
just 32 members.
The assumption regarding group size significantly affected
petitioner’s expert’s valuation of the group contracts. As noted
by one of respondent’s experts, a mere 1-percent decline in the
total member enrollment relating to petitioner’s group contracts
would reduce the present value of all 23,526 group contracts by
approximately 15 percent.
With regard specifically to petitioner’s community-rated
group contracts, petitioner’s expert valued these contracts using
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