Life insurance agents hope that legislation enacted by Congress in the closing days of 2001 will help spur new investments in life insurance.
The legislation, H.R. 1088, reduces a variety of taxes on those who invest, directly or indirectly, in the stock market.
In particular, the legislation reduces a federal tax that is imposed when stocks are sold. House Financial Services Committee Chairman Mike Oxley, R-Ohio, notes that this tax affects everyone who owns an equity investment.
These equity investments, he notes, include certain life insurance policies, private retirement plans, 401(k) plans and mutual funds.
“This is a major victory for American investors,” Oxley says. “For too long, the government has been making money hand over fist at the expense of American investors long-term growth.”
David Winston, vice president of government affairs for the National Association of Insurance and Financial Advisors, Falls Church, Va., says NAIFA fully supports H.R. 1088 and he praises Congress for enacting it into law.
The legislation, Winston says, will reduce the unnecessary tax on capital and investment and create incentives for Americans to save and invest.
According to the Financial Services Committee, investors currently pay some $3 million per trading day in excess transaction fees.
The original purpose of the fee, the committee says, was to fund the Securities and Exchange Commission.
However, due to unexpected increases in trading volume, fee revenue exceeds the budget of the SEC by a significant and growing margin, according to the committee.
Indeed, the committee says, the SEC is now funded at more than six times its budget. The excess money, the committee says, goes to pay for other Washington programs.
The committee estimates that the legislation will save American investors $14 billion over 10 years.
H.R. 1088 is now on President Bushs desk awaiting his signature. He is expected to sign the bill shortly.
Meanwhile, the failure of Congress to enact an economic stimulus package is causing a serious problem in the life insurance industry.
Included in the legislation that was passed by the House but which died in the Senate, H.R. 3529, was a provision extending for five years the 2001 tax treatment of investment income earned by foreign subsidiaries of U.S. financial services firms under Subpart F of the tax code.
Under the 2001 rules, the income was not subject to U.S. tax until received by the parent. But due to the failure of Congress to extend this treatment, the income is immediately taxable when earned by the subsidiary.
“This is a serious problem,” says Doug Bates, assistant vice president with the American Council of Life Insurers, Washington.
“We are trying to figure out how serious,” he says, adding, “Hopefully, we wont have to worry about it too long.”
Bates says ACLI is working to get Congress to address the issue immediately upon its return on Jan. 23.
Bates notes that the provision in H.R. 3529 also contains an important technical change regarding the method used to calculate foreign reserves that would be of great benefit to life insurers doing business abroad.
Currently, Bates says, when determining how much income can be deferred, foreign life insurance subsidiaries must make two calculations.
First, he says, they must do a calculation using the reserving method in the foreign country. Then, he says, they must recalculate for U.S. tax purposes using U.S. reserve methodology.
Bates says the U.S. methodology, however, usually results in a smaller reserve than is required in the foreign country.
H.R. 3529, Bates notes, contains language allowing life insurance companies to use the foreign countrys methodology in calculating reserves so long as the Treasury Department says the methodology is valid and not just a way to hide income.
This, Bates says, is a major change and ACLI will encourage Congress to include it in any bill addressing Subpart F.
Finally, the fate of legislation that would commission a Treasury Department study of the possible impact of another major terrorist event on the life insurance industry remains uncertain.
A lot will depend on what happens in the property-casualty market and on the results of a General Accounting Office study recently requested by the House Financial Services Committee.
The Senate recessed until Jan. 23 without enacting legislation that would create a federal terrorism insurance backstop for the p-c industry as well as establish the life insurance study.
As a result of the Senates failure to act, the National Underwriter has learned that the Financial Services Committee has asked the GAO to examine the state of the terrorism reinsurance market in preparation for a hearing expected to take place shortly after Congress returns.
Many p-c industry lobbyists believe that what happens next in Congress depends on what happens in the marketplace.
The key, says Carl Parks, senior vice president of federal affairs for the National Association of Independent Insurers, a major p-c group, is the sense that members of Congress develop during the recess of the extent of economic dislocation caused by Congress’ failure to act.
If members get a sense that there is a major disruption in the economy, Parks says, they will act. But if not, he says, they probably will not act.
Reproduced from National Underwriter Life & Health/Financial Services Edition, January 7, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.