Pre-Event Catastrophe Reserves An Update

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Presentation transcript:

Pre-Event Catastrophe Reserves An Update Kay Cleary September 2003 • Chicago, Illinois

Summary of NAIC Proposal Federal Income Tax deferral Voluntary Cap on total amount is sum of by-line subtotals For each eligible AS line of business Qualifying line Written Premium times Factor for that line 9/2003 CLRS

Current applicability Property lines only Specified perils only 9/2003 CLRS

NAIC Proposal 20-year phase in Tax-deferred contributions; taxed in year of draw down 9/2003 CLRS

Proposed Accounting Balance Sheet Income Statement Notes to Financial Statements 9/2003 CLRS

Paying Catastrophe Claims Qualifying events Amount to be withdrawn 9/2003 CLRS

Status of NAIC Proposal No activity on federal tax change RBC treatment Accounting treatment 9/2003 CLRS

Potential Revisions to NAIC Proposal Review factors – update needed? Terrorism Workers' Compensation Other, including non-P&C lines 9/2003 CLRS

SAP Statement of Concepts Conservatism – yes Consistency – no Recognition – probably OK 9/2003 CLRS

Accounting Treatment Definition of liability (SSAP #5, FASB Statement of Concepts #6) Pre-Event (SSAP #55) Matching of income and expenses 9/2003 CLRS

Tax Issues Fewer tax dollars from industry. Offset elsewhere? CLRS 9/2003 CLRS

Liability or Special Surplus? Should be surplus? (SSAP 72) 9/2003 CLRS

Voluntary Reserve Consistency SSAP 60 if mandatory 9/2003 CLRS

Considerations New entrants M & A's Cease writing line(s) of business Company vs. Group 9/2003 CLRS

Comments Received Inefficient on an industry level? Inefficient use of capital? 9/2003 CLRS

International Accounting Equalization reserves Catastrophe reserves 9/2003 CLRS

Why set up a reserve? Mandatory Best use of $$ for purpose Federal income tax Compare to other uses Mixture of tools 9/2003 CLRS

Summary Federal tax revision? Accounting? Additional lines and perils? Design modifications? Significant, appropriate, & fair incentive? 9/2003 CLRS