Service attacks experience-rated reinsurance agreements

Article Abstract:

The Internal Revenue Service (IRS) found that two experience-rated reinsurance contracts could not be recognized because they avoided taxes. The unnamed reinsurer gained tax benefits disproportionate to the risk assumed. The IRS found that the reinsurer did not pay its share of losses in the first contract and had terminated the second contract prematurely prior to the acquisition of the company. The reinsurer should not have qualified as a life insurer for tax purposes as it had stated. The IRS denied the ceding commissions which the reinsurer deducted.

Public Finance Activities, Insurance, Insurance Carriers and Related Activities, Tax Administration, INSURANCE CARRIERS, Taxation, Reinsurance, Tax policy

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Deficiency reserve not allowed for nonlife SPDAs

Article Abstract:

The Internal Revenue Service (IRS) has decreed that only life insurance reserves for single-premium deposit administration contracts can have deficiency reserves. A deficiency results when an insurer charges a premium that is less than the net valuation for that class of policy and is negated by establishing a reserve to compensate for the amount. The permitted reserve is now equal to the interest compiled at the guaranteed rate up to the valuation date.

Life insurance, Finance, taxation, & monetary policy, Laws, regulations and rules, Insurance industry, Column, Single-premium life insurance, Single premium life insurance

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