New Tax-Deferred Plan Approved

With the capital-relief proposal recently approved by insurance regulators, more life insurance companies will be able to make better use of deferred-tax assets. The move is championed by various consumer groups. It was originally submitted by the American Council of Life Insurers in 2008.

The approval was granted by a regulatory committee. The next hurdle is to get approval by the full body of the National Association of Insurance Commissioners later in the year.

The capital-relief proposal would designate different levels to deferred-tax assets so they could be factored in calculations on the insurer’s capital. Such assets are defined as credits that a particular company may use to offset their future taxes. Most of the time, tax-deferred assets have a value as long as the company generates future profits that can be put into use.

A number of regulators and consumer activities opposed the proposal citing the difficulties inherent in forecasting profits in the best conditions, let alone during a recession. Insurance companies counter by saying that having broader use of tax credits may provide better data regarding potential financial position.

Proponents of the proposal assure regulators and other advocates that participating regulators have installed adequate provisions to protect consumers. For example, regulators have established limits on how credits may be used by poorly performing insurers. In addition, expanded access may be in use for a two-year period in order to study the results.

In 2008, regulators provided additional access of tax assets on a case-by-case basis to different insurers. Basically, this allowed less than $7 billion in assets to be considered when making capital calculations. Current estimates put the value at nearly the same for 2009 so far.

The final version of the proposal approved by the NAIC committee is actually different from the one that was originally created by the ACLI. Compromises were needed to get the final go-ahead. Those like the ACLI’s chief actuary, Paul Graham, see the approval as a step in the right direction.