Tax

Question 1

How is the discount rate to be used in tax calculated

Answer 1

For each AY, the discount rate is the 60mnth moving average of the “federal mid-term rates”, ending Dec 1 of the prior AY

Question 2

Briefly describe “determination years”

Answer 2

Year that ends in a “2” or “7”, where the insurer chooses the source of its assumed payment pattern (its own pattern or industry pattern).

Question 3

How should negative discount factors be treated

Answer 3

The negative discount factor needs to be replaced by a linear interpolation between the nearest positive discount factors on each side.

Question 4

List 5 signs that an insurer is using reserve margins

Answer 4

1. Reserves booked higher than what would be implied by standard reserving methods
2. Reserves booked higher than the actuarial reserve indications
3. Favorable reserve development in Schedule P, Part 2
4. Average paid losses lower than the held reserves
5. IRS reserve indications lower than that of insurer

Question 5

Portion of Tax exempt income that is taxed due to proration provision

Answer 5

15%

Question 6

Due to the DRD, what portion of dividends are tax exempt

Answer 6

• if the taxpayer owns less than 20% of the firm, 70% (unaffliated)
• if the taxpayer owns between 20 & 80%, 80% (affliated)
• if the taxpayer owns more than 80%, 100% (controlled)

Question 7

Equations to determine Tax Basis EP

Answer 7

• WP - 80% * Change in UEPR;
• Statutory EP + 20% * Change in UEPR

Question 8

Equations to determine Tax Basis IL

Answer 8

• Paid losses + Change in discounted reserves;
• Statutory Incurred Losses - Change in Reserve Discount

Question 9

AMTI equation

Answer 9

AMTI = RTI + 0.75 * Income that escapes taxation