Statutory reserving and reserving for tax purposes can differ, he explained. State insurance regulators want to reserve conservatively and the Internal Revenue Service can view these requirements as over-reserving, he said, so reaching an understanding with IRS is a goal for the meeting. He pointed out that the IRS gets the same amount of tax money but that it is more a matter of when they receive it: now or later.
Oxendine noted that it is important to get on the same page with Treasury, although he said “there is a lot of concern that any time you go to Capitol Hill you can open up a can of worms.”
The tax issue has been a speed bump as life actuaries consider more flexible ways to reserve for life insurance products. Indeed, stochastic modeling, although favored by many actuaries in the industry as a more innovative reserving tool than formulaic reserving, has raised concern among insurers who fear it will affect the tax treatment of life insurance products. Greater reserving flexibility is considered to be one way to create more flexible life insurance products. Many in the industry see the creation of flexible products as critical to its long-term competitiveness.
However, the American Council of Life Insurers, Washington, has favored a standard reserving scenario because it says it is more consistent with the way the IRS views reserving for life insurance policies.
Reproduced from National Underwriter Edition, December 16, 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.