Reserving Rule Watchers React To IRS Notice

The people involved with developing a principles-based reserving system say they were happy to see the Internal Revenue Service issue a PBR notice earlier this week.

In the notice, IRS Notice 2008-18, IRS and U.S. Treasury Department officials ask for comments about the federal income tax consequences of shifting the insurance industry away from static reserving formulas, toward depending on general principles and sound actuarial judgment.

At press time, some key players in the PBR project, such as Larry Bruning, a Kansas actuary, and Thomas Hampton, the District of Columbia insurance commissioner, could not be reached for comment.

Other participants in PBR discussions already are starting to weigh in.

- The American Council of Life Insurers, Washington, has “been expecting this,” ACLI spokesman Whit Cornman says.

“The notice from Treasury and IRS is a positive step forward in efforts to modernize reserve calculations for life insurance and variable annuities,” Cornman says.

“[The] ACLI has been communicating with Treasury and IRS for over a year now on the potential effect of these changes on companies’ tax reserves,” Cornman says. “Notice 2008-18 is a formal solicitation of comments on issues identified through the dialogue between the life insurance industry, Treasury and IRS.”

- The Affordable Life Insurance Alliance, Washington, believes the issues raised by the Treasury and the IRS are the same as those identified at the beginning of the PBR process by regulators, insurers and actuaries, according to ALIA Executive Director Scott Harrison.

There are no surprises in the notice, Harrison says.

The lack of surprises and the willingness of the Treasury and the IRS to seek industry input are positive signs, Harrison says.

Officials seem to imply in the notice that they would prefer to focus on changing regulations rather than asking Congress to change the tax laws, Harrison says.