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.

Harrison says he sees that as another positive.

ALIA believes there is enough flexibility within the tax code to interpret PBR without changing the law, Harrison says.

ALIA also believes the industry can shift to a PBR system without costing the government any tax revenue, Harrison says.

Shifting to a PBR system should reduce the reserves required to their “economic level,” and that lower level should reduce the tax deductions that companies can take, Harrison predicts

Experts must conduct tests to make sure that assumption is correct, Harrison says.

Either way, the PBR process would not in any way reduce the authority of the Treasury or of the IRS, Harrison says.

- Donna Claire, a life actuary with Claire Thinking Inc., Fort Salonga, N.Y., who is helping to manage the work of many of the actuaries who are participating in the PBR project, says the IRS has given PBR advocates something concrete to respond to.

The authors of the notice are saying that any new reserving framework must work within the requirements of the tax code, Claire says.

- The American Academy of Actuaries, Washington, has put out a statement welcoming the release of the new notice.

“The recent Treasury notice is an important step, and the academy looks forward to continue working with the Treasury Department and the IRS on this important effort,” the AAA says in the statement.