Part 24 (Odomirok 26)

Question 1

What does the IRS not want about Statutory accoutning

Answer 1

Statutory accounting defers the recognition of premium, which can lead to companies getting tax refunded.

Question 2

What does Tax accounting do

Answer 2

Tries to better match EP and Expense Recognition

Question 3

What is the revenue offset adjustment to and amount

Answer 3

to UEPR and is 20% of premium

Question 4

Tax Basis EP

two formulas

Answer 4

NWP - 80% * change in UEPR
or
SAP NEP + 20% * change in UEPR

SAP NEP = Stat net earned prem

Question 5

SAP EP calculation

Answer 5

WP - change in UEPR

Question 6

SAP incurred losses are based on what, and why is this a problem for tax
So what does the IRS do instead?

Answer 6

based on undiscounted losses

• There may be an underwriting loss initially

IRS uses discounted losses

Question 7

Tax basis incurred losses formula 2x

Answer 7

Paid Losses + Change in discounted reserves
or
SAP Incurred losses - change in Reserve discount

Question 8

Tax free investment income like on Municipal bond interest is treated differently. How so, and from what?

Answer 8

It is tax exempt for companies in most industries

Proration Provision makes it not completely tax exempt

Question 9

Proration Provision calculation

Answer 9

25% * Taxable Income

then add this amount to the regular taxable income

Question 10

Regular Taxable Liability

Answer 10

21% * Taxable income

Question 11

What is the tax rate

Answer 11

21%

Question 12

What is BEAT

Answer 12

Base Erosion and Anti-Abuse Tax

Question 13

When does BEAT apply

Answer 13

• Insurer is part of US group that has avg premium in the past 3 years > $500M
• Payments being made to companies overseas (base erosion payments) > 3% of total deductions taken by teh US group in its current tax return

Question 14

Calculate BEAT

Answer 14

1. Determine if subject to BEAT
2. Determine taxable income and regular tax
3. Calculate Modified Taxable income
4. Appy BEAT tax rate of 10% to the modified taxable income
5. Insurer is responsible for max(taxable liability, BEAT)

Question 15

Modified Taxable income formula

Answer 15

Regular Taxable income + base erosion payment

Question 16

What is the BEAT tax rate

Answer 16

10%

Question 17

Discounted reserves are determined from 3 components

Answer 17

• Undiscounted loss reserves
• Discount Rate
• Loss payment pattern by line

Question 18

Where are undiscounted loss reserves taken from,
why is this important

Answer 18

Schedule P, Part 1

Net of tabular discount and gross of non-tabular discount

necessary to gross up the reserves for the tabular discount before the application of the IRS discounting procedure

Question 19

How does the discount rate vary and based on what

Answer 19

By AY, based on the corporate bond yield curve

Question 20

What will the rate for an AY be for discounting in reserves (attribute)

How is it treated in future CYs

Answer 20

Fixed, and will apply to the AY in all future CYs

Question 21

Loss payment pattern is calculated by the IRS when, and what is it based on

Answer 21

every 5 years

on paid loss development from the industry aggregate Schedule P, Part 1 data