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t1.a.F.. -d 9' OI I~IONI ]d'?~ LdWOFFICES P. UUa <br />reinsurance. The retroactive reinsurance is from National Indemnity Company, a <br />subsidiary of the Berkshire Hathaway Group. The retroactive reinsurance is an aggregate <br />reinsurance agreement effective October 1, 2000 which covers all liabilities for accident <br />years 1999 and prior up to a reserve amount of 5800 million. The aggregate reinsurance <br />agreement also covers all surety losses far accident yeaz 2000 and prior. The retroactive <br />reinsurance reduced the needed loss and LAE reserves at December 31. 2000 6y <br />594,308,494. <br />Ceded loss reserves not with residual mazket pools, mandatory pools, affiliates, with <br />companies rated A- or better by A.M. Best Company or fully collateralized aze <br />59,032,000 in Schedule F-Part 3. This is 2.2% of the total ceded loss and loss adjustment <br />expense reserves of $407,271,000. Reinsurance recoverable balances past due as detailed <br />by Schedule F-Part 4 for paid losses and LAE is $17,914,000 of which 51,274,000 <br />(7.1%) is over 91 days or more past due. The Company believes that all of the <br />reinsurance balances aze recoverable. While the non-collateralized balances aad <br />reinsurance recoverable balances overdue are small relative to the Company's loss and <br />LAE reserves, the balances are material to the Company's statutory surplus. <br />I have reviewed the calculations of the National Association of Insurance <br />Commissioners' Insurance Regulatory Information System test that relate to the <br />Company's December 31, 20001oss and loss adjustment expense reserves (Test 9, One <br />Yeaz Reserve Development to Surplus: Test 10, Two Year Reserve Development to <br />Surplus; and Test 11, Estimated Current Reserve Deficiency to Surplus). Exceptional <br />values were noted with respect to the Company's December 31, 2000 loss and loss <br />adjusmtent expense reserve tests for Test 9, Test 10 and Test 11. The exceptional values <br />aze a result of significant reserve strengthening in calendar years 1999 and 2000. In <br />2000 the Company added approximately $129,132,000 to loss and ALAS reserves to <br />1999 and prior accidenU report yeazs as detail in Schedule P Part 2. The commercial auto <br />liability, other liability, and surety annual statement lines ofbusiness were the primary <br />recipients of the reserve strengthening in 2000. <br />I have not reviewed the Company's unearned premium reserves except for the reserve for <br />the Death, Disability and Retirement (DDR) benefit for medical malpractice claims-made <br />policy forms. The DDR reserve was calculated using a present value model, which takes <br />into consideration future premium, morality, morbidity and retirement rates. The DDR <br />reserve is the difference between the discounted present values of future payments and <br />DCemlllm. <br />I have not reviewed any of the Company's assets nor have i ;ormed an opinion as to their <br />validity or value. The following opinion is based on the assumption that the Company's <br />December 31, 2000 statutory based reserves identified herein, aze funded by valid assets <br />that have suitably scheduled maturities and/or liquidity to meet cash flow requirements. <br />