CIA Taxes

Question 1

Formula for Income tax deduction

Answer 1

95% * min( reported reserve ; APV of claim liability)

***Reported reserve: Amount of the net claim liabilities carried by the insurer, and recorded in the insurer’s Annual Statement

***Claim liability: Net claim liabilities determined in accordance with accepted actuarial practice (i.e. discounted to reflect the time value of money, and including explicit provisions for adverse deviations)

Question 2

Estimated effect of discounting the asset for future income taxes

Answer 2

[reported reserve – Income tax deduction] * [future tax rate] * [1 – PV factor]

PV factor = [discounted reserve without PfAD + PfAD for IRR]/[undiscounted reserve]

Question 3

What does the Future Income Taxes asset represent ?

Answer 3

A prepayment of tax as a result of the liability deducted for tax purposes being less than the amount reported on the balance sheet