NAIC Looks At Federal Tax Policy

Representatives of the property-casualty industry will also be present at the public hearing in the District of Columbia on Aug. 12 to 13.

David Woods, NAIFA's chief executive officer, praised the NAIC for its efforts, noting that it is "unique for state regulators to involve themselves in federal tax policy." The interest is important, he continued, because the consumers that they regulate could be negatively impacted by federal lawmakers' tax decisions.

Mr. Woods emphasized that it is important to reinforce insurable interest statutes because the Senate Finance Committee has already expressed concern over the use of life insurance as an investment. "We are very much afraid that it could open the door to a broader attack on the advantages of life insurance," he remarked.

In addition, Mr. Woods said that the current laws regulating corporate-owned life insurance are reasonable and regulators need to convey that reasonableness to members of Congress.

Laurie Lewis, an ACLI vice president and chief counsel-federal taxes, said she would offer a broad perspective of how a company's taxation and state insurance laws interact.

For instance, according to Ms. Lewis, actuarial guidelines and tax requirements do not always work well together. A current project of the NAIC, called the C-3, Phase II, is a case in point, she explained. While the stochastic model approach for this risk-based capital and reserving project might be beneficial from an actuarial standpoint, Ms. Lewis said that it does not help with tax issues which require use of specific tables, methods and interest rates outlined by the Internal Revenue Service.

The issue also arises in discussions of changes to the non-forfeiture law and CSO Tables for reserving, she added.

There is no provision in the current Code, Lewis explained, that references use of multiple tables for reserving. Consequently, she continued, if some companies are using CSO tables that produce lower reserves, there is a concern that IRS would make that the standard for all companies. And, if that becomes the case, she added, companies who hold higher reserves for statutory purposes will not get credit for those reserves.

Jim Hall, ACLI's state relations representative, said that his presentation would include a discussion of state premium and retaliatory taxes. State premium taxes range from .5 percent in Illinois to 3.5 percent in Nevada, Mr. Hall said. But, he added, the lower premium tax rates are often a part of a package of taxes that companies pay. At the state level, tax issues are very specific to a state and may not come up again once they are resolved, he noted.

Jim Connolly is Senior Editor with NU Life & Health Magazine