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NAIC Looks At Federal Tax Policy

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The importance of insurable interest to federal tax policy will be one of several issues state insurance regulators hear about during a public hearing that marks the start of efforts to offer input into federal tax policy.

The National Association of Insurance and Financial Advisors, Falls Church, Va., and the American Council of Life Insurers, Washington, will speak during a public hearing held by the National Association of Insurance Commissioners, Kansas City, Mo. Representatives of the property-casualty industry also will be present at the public hearing in Washington on Aug. 12-13.

David Woods, NAIFAs CEO, praises the NAIC for its efforts, saying it is “unique for state regulators to involve themselves in federal tax policy.” The interest is important, he continues, because the consumers they regulate could be negatively impacted by federal lawmakers tax decisions.

Woods emphasizes that it is important to reinforce insurable interest statutes because the Senate Finance Committee already has expressed concern over the use of life insurance as an investment. “We are very much afraid that it could open the door to a broader attack on the advantages of life insurance.”

In addition, Woods says the current laws regulating corporate-owned life insurance are reasonable, and regulators need to convey that reasonableness to members of Congress.

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.