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terminated between 1982 and 1986, which indicated that each group
contract had a 2.2-percent to 7.5-percent probability of lapsing
from year to year, depending on factors such as group size and
duration of the contract.
The lapse rates utilized by petitioner’s expert, however, do
not account for foreseeable, as of January 1, 1987, and
significant changes in the health insurance marketplace that were
imminent and about to impact petitioner’s business and that
constituted significant factors affecting the life and value of
petitioner’s health insurance group contracts.
As explained, by the mid-1980s, the national health
insurance marketplace had become increasingly competitive with
escalating health care costs, the emergence of new health care
products, and the continued growth of alternative health care
product delivery services such as HMOs, PPOs, and plans
administered by third party administrators.
As evidenced by the following quotation from petitioner’s
1985 Annual Report, by the mid-1980s petitioner’s management was
aware that new health insurance products and new marketing
techniques were creating an increasingly competitive health
insurance industry:
We are witnessing the emergence of a new
competitive market in the delivery and financing of
health care services. During 1985 the once clear line
of demarcation between the financing and the delivery
of health care continued to fade. In Central
Pennsylvania and the Lehigh Valley new competition
emerged -- not just from insurance companies and third-
party administrators, but from Health Maintenance
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