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May 02, 2006 at 12:28 PM
Tax considerations are playing an important role in the race to create a modern, principles-based life insurance reserving system.
Experts talked about the implications of tax considerations for the principles-based reserving movement during a Web seminar sponsored by the Affordable Life Insurance Alliance, Washington.
State insurance regulators, life insurers and life actuaries have started the principles-based reserving project in an effort to reduce use of traditional static formulas and rely more on careful, flexible use of basic actuarial principles.
Advocates of the project say it will help insurers maintain adequate reserves while using capital more efficiently.
The Internal Revenue Service will look at principles-based reserve shifts to see whether they are comparable and auditable, said John Adney, a partner at Davis & Harman, Washington.
Principles-based reserving advocates have to avoid straying too far from the Commissioners’ Reserve Valuation Method associated with federal tax legislation that was enacted in 1984, Adney said.
Adney also talked about the importance of taking a cautious approach to changing mortality tables.
