390
Opinion of the Court
$500 (1986 loss reserves ($1,000) less (first year reserves ($2,000) less second year payments ($1,500))), even though reserves did not increase. The Commissioner denies this consequence, contending that under the stipulation in this case the increase in the reserve would be "reduced to zero" by an offsetting adjustment when the payment is made, and that adjustments in the IBNR reserve (reserve for claims "incurred but not reported") may result from payments in excess of prior reserve amounts, offsetting changes in other reserves. Brief for Respondent 36-39.
We need not resolve that dispute, because we agree with the Commissioner that Atlantic's horrific example is in any event unrealistic. The property and casualty insurer that had only four cases would not be in business very long, with or without the benefit of the tax adjustment—or if he would, his talents could be put to better use in Las Vegas. The whole point of the insurance business is to spread the insured risk over a large number of cases, where experience and the law of probabilities can be relied upon. And where hundreds (or more likely thousands) of claims are involved, claims resolved for less than estimated reserves will tend to offset claims that settle for more than estimated reserves. See Notice of Proposed Rulemaking Discounted Unpaid Losses, FI-139-86, 1991-2 Cum. Bull. 946, 947 ("For most unpaid loss reserves . . . any potential inaccuracies are likely to offset each other in the aggregate"). There may, to be sure, be some discrepancy in one direction or the other, but it would not approach the relative proportions claimed by Atlantic.
It should be borne in mind that the provision at issue here is a limitation upon an extraordinary deduction accorded to PC insurers. There was certainly no need for that deduction to be microscopically fair, and the interpretation adopted by the Treasury Regulation seems to us a reasonable accommodation—and one that the statute very likely
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