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NAIC Looks At Federal Tax Policy

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State insurance regulators will take a long look at a number of key issues related to federal tax policies during their upcoming meeting.[@@]

The importance of insurable interest will be one of several issues raised during a public hearing to offer the regulators’ 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 the public hearing, which will be held in Washington Aug. 12 and 13 by the National Association of Insurance Commissioners, Kansas City, Mo. Representatives of the property-casualty industry will also be present at the hearing.

David Woods, NAIFA’s CEO, praises the NAIC for its efforts, saying that it is “unique for state regulators to involve themselves in federal tax policy.”

Their interest is important because the consumers that they represent could be adversely affected by federal lawmakers’ tax decisions, he adds.

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,” he says.

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

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

For instance, actuarial guidelines and tax requirements do not always work well together, according to Lewis. A current project of the NAIC, called the C-3, Phase II, is a case in point, she explains.

While the this risk-based capital and reserving project uses a stochastic model that might be beneficial from an actuarial standpoint, it does not help with tax issues that require use of specific tables, methods and interest rates outlined by the Internal Revenue Service, Lewis says.

The issue also arises in discussions of changes to the nonforfeiture law and to Commissioners Standard Ordinary tables used for reserving, she adds.

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

Jim Hall, ACLI’s state relations representative, says that he will discuss state premium and retaliatory taxes during the hearing.

State premium taxes range from 0.5% in Illinois to 3.5% in Nevada, according to Hall. But 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.


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