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June 24, 2007 at 04:00 PM
Insurers and their tax experts are saying that a new principles-based reserving system that is being developed for life insurance products fits within current U.S. tax requirements, but a government official is responding more tentatively.
During a teleconference on tax issues surrounding principles-based reserving sponsored by the Affordable Life Insurance Alliance, Washington, Allen Booth, a life actuary with the Internal Revenue Service, Brookfield, Wis., said the conversation he heard on the call sounded like “wordsmithing,” and that “there are extreme differences of where we are and where we need to be.”
Booth noted, “There are all kinds of word nuances that would be appropriate under principles-based reserving,” but a real question to address is whether the new reserving system is “closer to economic reserves or farther away.” The current system has worked well, as evidenced by the fact that there have been no major insolvencies in 15 years, he said.
Although Booth did not say that PBR would not work or that tax issues could not be resolved, he did say that care was needed to put a system in effect that would work both today and in 15 years.
