Tax Payments Are Up And Insurers Are Citing Reasons

Robert DeFillippo, a spokesman for Prudential Ins. Co. of America, says that the amounts paid of received need to be put in context, reflecting “a combination of events that predate the years in which the amounts were paid or received. These events include refunds received from settlements of IRS tax audits dating back to the early-to-mid 1990s, utilization of net operating losses that originated in years prior to 2003 (operating losses may be held up to 15 years), and the federal tax due for each of those years after utilization of the net operating loss.”

DeFillippo explains that in 2003, the $7 million net refund resulted from the receipt of a more significant refund from a prior year’s audit and a significant tax payment for 2002.

In 2004, he continues, the $97 million net refund resulted from the receipt of a more significant refund from a prior year’s audit and significant tax payments for 2003 and 2004 tax years.

And, he adds, in 2005, the taxes paid — $606 million — represented taxes owed for the year 2005 plus the unpaid portion of the 2004 tax liability.

DeFillippo notes that “as it does with every other large insurance company, the IRS routinely audits Prudential’s taxes. Prudential pays its fair share of all applicable taxes and adheres to all applicable tax laws and regulations.”

Martin Ketelaar, a company spokesperson for AmerUs Group, Des Moines, Iowa, also noted IRS’ routine review of past company tax returns, citing a $30.5 million settlement AmerUs reached with the IRS as a major reason why the company paid $74.6 million in taxes in 2005.

AmerUs Group, Des Moines, Iowa, incurred taxes of $44.3 million in 2005 compared with $1.2 million in 2004, says Martin Ketelaar, a company spokesperson.

Mark Cybulski, a spokesperson for Mass Mutual, says that contested tax returns from previous years were part of the reason for the increase in taxes actually paid in 2005.

American Family Life Assurance Co. of Columbus, Columbus, Ga., had varying tax payments reflecting the taxes it paid in Japan.

“Aflac’s taxes paid consist of two parts: the taxes paid in the U.S. and the taxes paid in Japan,” explains Mechell Clark, a company spokesperson. “The company operates on a branch basis in Japan, which accounts for 70% to 75% of its net income.”

She notes differences between the U.S. and Japanese tax systems. “The tax year for Japan was formerly a fiscal year ending on March 31 until 2005 at which point it changed to a December 31 fiscal year end. Also, in Japan, operating earnings and capital gains and losses are combined for tax calculation purposes whereas in the U.S. the amounts are considered separately in determining taxes to be paid.”

And, according to Clark, “Japan’s tax law requires that initially estimated tax payments are based upon the prior year’s tax liability which resulted in an overpayment of estimated tax in 2003 which was applied to 2004 resulting in a lower tax payment required in Japan in 2004.

“Because the current year estimated tax payments are based upon the prior year tax liability, the 2004 estimated tax payments were lower than the final tax liability for the year. This resulted in a larger final tax payment for the tax year 2004 in 2005.”

The change in the federal foreign income tax for Transamerica Life Insurance Company is the result of a merger with Transamerica Life Insurance and Annuity Company, an affiliate, says Debra Newton, a Transamerica spokesperson.

The change in the federal foreign income tax for Transamerica Occidental Life Insurance Co., she continues, is explained as follows. In 2003, taxes were overpaid. Therefore, in 2004, a quick refund was filed and the refund was received, she says.

A Genworth spokesperson explained changes in GE Capital Assurance’s taxes paid.

“The fluctuation in GECA’s (now GLIC’s) cash tax payments over the 2003-2005 period was primarily attributable to the IPO, and IPO-related reinsurance, transactions that occurred during May 2004,” says the spokesperson.

“Calendar year 2004 was split into two tax periods as a consequence of the IPO. Because part of the IPO impact — a benefit — fell in the first 2004 period, while another portion of the IPO impact — a cost — fell in the second 2004 period, cash tax payments were depressed in 2004 and spiked in 2005. Adjusting for those extraordinary items, GECA’s taxable income was relatively constant over the 3-year period.”

Christina Marchetti, a Principal Financial spokesperson referred to the company’s 2005 annual report which among other points, cites factors affecting taxes including an IRS review of income tax returns that found deficiencies totaling $445.3 million for Principal Group which was paid in first quarter 2005 resulting from the disallowance of carry backs and contested issues which the company said would take several years to resolve if they were pursued.