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

2. 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

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

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

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

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Amount to be withdrawn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

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

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

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

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

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

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

13. Voluntary Reserve
Consistency
SSAP 60 if mandatory
9/2003
CLRS

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

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

16. International Accounting
Equalization reserves
Catastrophe reserves
9/2003
CLRS

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

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