Taxation Section Webcast: “Federal Income Tax Issues Every Company Must Consider under Life PBR”

On June 10, 2016, the Taxation Section hosted a webcast entitled “Federal Income Tax Issues Every Company Must Consider under Life PBR.” Panelists Kristin R. Norberg, Mark S. Smith, and Peter H. Winslow led the audience through an exploration of the many potential tax issues and areas of interpretation that will arise once principle-based reserves (PBR) becomes the new statutory financial reporting regime for life insurance contracts.

The webcast had a great turn-out, with approximately 120 sites registered and well over 900 participants. Three-quarters of respondents to the polling questions identified as actuaries who are not primarily focused on tax. This was by far the largest audience the Taxation Section has attracted for a webcast, which is indicative of the importance of this topic as the industry marches ever closer to the operative date for Life PBR.

After a brief update on the state adoption status and an introduction to past guidance from the Internal Revenue Service (IRS), the panelists explored topics in the following categories:

Policyholder tax compliance—relating to the concurrent adoption of the 2017 Commissioners’ Standard Ordinary Mortality Tables.
Transition rules—including the initial three-year transition, the small company and single-state exemptions, and issues for companies domiciled in states that have not yet adopted PBR.
The three components of PBR—the net premium, deterministic, and stochastic reserve components, addressing the inclusion of each component in the federally prescribed reserve and the statutory cap, as well as approaches for meeting the interest and mortality requirements and the other computational rules of Internal Revenue Code section 807(d).

Within each category of topics, the panelists first explained the relevant requirements in the NAIC’s Valuation Manual, the rules in the Internal Revenue Code, and any available guidance from the IRS, then continued with an open discussion of the interpretational challenges and potential ways to approach each tax compliance issue. Additionally, the panelists provided a reference to the many informative articles and dialogues that have been published in TAXING TIMES throughout the newsletter’s history (see sidebar).