The new tax law changes how reserves are computed for the purpose of determining taxable income. All policies in all lines of business are affected.
These changes happened quickly. Many are now left wondering what the impact might be as we go into year-end work. These changes will not impact the 2017 tax returns, but some ponder how cashflow testing will be influenced.
Interpreting the Changes
As normally happens with tax law changes, there are multiple interpretations about how to transform the words in the law into calculations. It is clear that there is a 7.19% haircut to the reserve, but it is not completely clear what the reserve should be.
The federally prescribed basis in the old law seems to have been eliminated, but the method required by the NAIC at the time the reserve is determined appears to be mandated. Whether the assumptions change over time, too, appears less certain.
Measuring Impacts with PolySystems
PolySystems is preparing changes that will support a range of interpretations for computing reserves according to the new tax law. These modifications will be fully implemented by Q1 2018.
However, PolySystems can help you use our current tools to measure impacts of the changes without interfering with your year-end schedules. All you have to do is zip your year-end data, assumptions, and software, and send it to us. Our production support actuaries will:
- work with you to develop a set of parameters for the new tax law. These parameters will be established for each line of business that you send;
- adapt your VMF files to place new tax reserve fields with the current ones that you have already calculated;
- add any necessary parameters to the table coding;
- use the appropriate tools to populate these fields;
- review the results according to the parameters we set with you;
- return reports and, if desired, detail records that show the differences in reserves;
- prepare the modeling platforms to forecast the new tax reserves and report differences from the prior tax law.
PolySystems will bill for actual time and materials used. Contact us today for assistance in testing tax reserve impacts.