NAIC Looks At Federal Tax Policy

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.