Federal and foreign taxes paid in 2005 nearly doubled over 2004 for the top 50 life insurers in this category, annual statement filings indicate.
In 2005, the tax bill for the top 50 totaled $10.3 billion, excluding taxes or refunds on capital gains or losses, according to data from the National Association of Insurance Commissioners annual statement database via National Underwriter Insurance Data Services/Highline Data. That was up 96% from 2004′s $5.3 billion. The 2004 total was 32% greater than $4 billion paid in 2003.
Triple-digit increases were posted by eight companies and double-digit increases by 15. Eleven companies paid out less in taxes in 2005 over 2004.
Several interviews with National Underwriter conjectured that higher earnings could be a key component in the increase in taxes paid.
But data from NUIDs suggests this is a possibility for only a handful of companies and not for the top 50. An examination of net gain before dividends and federal income taxes found that for the top 50, net gain dropped 6% in 2005 over 2004.
The exceptions include the following: Massachusetts Mutual Life Insurance Company with a 30% increase; Transamerica Life Insurance Company, up 175%; General American Life, up 104%; Jefferson-Pilot Financial, up 50%; and Hartford Life & Annuity, up 42%.
Another explanation is offered by RGA Reinsurance Company, St. Louis, which paid $89 million in taxes in 2005, a 1,557% increase over 2004′s $5.4 million. The 2004 total was down 53% from 2003′s $11.5 million. The reason for the variability, Kent Zimmerman, RGA’s vice president-tax, explains, is related to the timing of payments.
Zimmerman says it is important to distinguish between tax obligations incurred during a year and actual payments made to or received by the federal government. So, he explains, in one year more money may be going out the door because of either accelerated payments or deferral rules allowed by the law, which lets companies maximize cash flow.
For instance, he says, RGA and most large companies make quarterly payments. In 2004, he continues, earnings came in at the end of the year and were paid in March 2005. Earnings for 2005 came in early in the year and were included in the quarterly payment in April 2005, he adds.
To give balance to the greenbacks actually floating in or out of a company’s door, Zimmerman says it is also important to look at taxes incurred (p. 4, line 32). Incurred taxes are the actual tax bill for the year.
In RGA’s case, incurred taxes actually declined 23% to $38.5 million from $49.9 million in 2004 after increasing 179% from $17.9 million in 2003.
For the top 50, incurred tax, the tax bill for the year, remained roughly flat at $5.96 billion in 2005 compared with $5.95 billion in 2004. The 2004 total was 38% over $4.3 billion incurred in 2003.
In the case of John Hancock Life Insurance Company (USA), in 2004 and 2003, the insurer was able to use loss carry forwards to reduce its tax bill, says Patrick Gill, senior vice president and comptroller with the company, based in Boston.
A carry forward is a commonly used accounting method to take losses during a year and apply them to future years when there are profits. In 2005, those carry forwards had been used and tax payments in that year were related to what actually happened in that year, Gill explains.
The sale of the MetLife building at 200 Park Avenue in New York in April 2005 for $1.72 billion was a factor in the increase in taxes paid for both Metropolitan Life and Metropolitan Tower Life, says John Calagna, a MetLife spokesman. In the case of General American, he says, the rise in taxes paid was due to an increase in earnings as well as a loss of tax carry forwards.
Robert DeFillippo, a spokesman for Prudential Insurance Company of America, says the amounts paid or 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 Internal Revenue Service 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.”