NAIC Looks At Federal Tax Policy

Laurie Lewis, an ACLI vice president and chief counsel-federal taxes, says she will offer a broad perspective of how a companys taxation and state insurance laws interact.

For instance, according to Lewis, actuarial guidelines and tax requirements do not always work well together. A current project of the NAIC, Kansas City, Mo., called the C-3, Phase II, is a case in point, she explains. While the stochastic model approach for this risk-based capital and reserving project might be beneficial from an actuarial standpoint, Lewis says it does not help with tax issues, which require use of specific tables, methods and interest rates outlined by the Internal Revenue Service.

The issue also arises in discussions of changes to the nonforfeiture law and CSO Tables for reserving, she adds.

There is no provision in the current Code, Lewis explains, that references use of multiple tables for reserving. Consequently, she continues, if some companies are using CSO tables that produce lower reserves, there is a concern that IRS will make that the standard for all companies. And, if that becomes the case, Lewis adds, companies that hold higher reserves for statutory purposes will not get credit for those reserves.

Jim Hall, ACLIs state relations representative, says his presentation will include a discussion of state premium and retaliatory taxes. State premium taxes range from 0.5% in Illinois to 3.5% in Nevada, according to Hall. But, he adds, the lower premium tax rates are often a part of a package of taxes that companies pay. At the state level, tax issues are very specific to a state and may not come up again once they are resolved, he says.

Reproduced from National Underwriter Edition, August 12, 2004. Copyright 2004 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.