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Regulators To Ask IRS About Reserving

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The National Association of Insurance Commissioners has voted to talk to the U.S. Treasury Department about tax issues affecting insurers.[@@]

A tax talk motion passed here at the Kansas City, Mo., group’s winter meeting during a joint session of the NAIC’s executive committee and the NAIC’s plenary.

Discussions with the Treasury Department should start in early 2005, according to Georgia Insurance Commissioner John Oxendine, head of the NAIC’s Tax Policy Task Force.

Topics to be discussed will include tax treatment of general reserves, health insurance reserves and property-casualty catastrophe reserves, Oxendine said.

Getting on the same page as Treasury is important, even though “there is a lot of concern that any time you go to Capitol Hill you can open up a can of worms,” Oxendine said.

Insurers often struggle to reconcile state regulators’ reserving rules with Internal Revenue Service rules. When insurers please state regulators’ by establishing conservative reserves, IRS officials may say the insurers are cutting their current tax bills by over-reserving, Oxendine said.

In the long run, conservative reserving has little effect on overall IRS tax revenue, but it may defer payments to the IRS to a later date, Oxendine said.

Recently, reserve taxation has been a problem for the life actuaries who are trying to help the NAIC improve its methods for setting reserve requirements for life insurance products.

Many actuaries would prefer to see insurers base reserving decisions on flexible statistical models, rather than on traditional formulas, but the American Council of Life Insurers, Washington, says the traditional formulas mesh better with the IRS view of life insurance policy reserves.