Proposed changes to corporate-owned life insurance and the dividend received deduction for separate account products could add to life insurers’ headaches.
Scott Robinson, a credit analyst at Moody’s Investors Service, gives that assessment in a comment on the Obama administration deficit-reduction proposal.
The proposal calls for increasing taxes on corporate-owned life insurance (COLI) arrangements and making the dividends-received deduction (DRD) for life insurers’ separate accounts less favorable to insurers.
The proposal is supposed to save a total of about $3 trillion over 10 years, with $1.5 trillion coming from spending cuts and $1.5 trillion from tax increases.
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The COLI provision could raise as much as $7.7 billion over 10 years, but, in the real world, the main effect on life insurers likely would be a dramatic reduction in demand for the product, Robinson says.
The DRD change is supposed to raise about $5.1 billion over 10 years.