Iowa raises capital levels on deferred tax assets

Iowa’s insurance commissioner yesterday posted a bulletin that would allow life insurers in that state to apply deferred tax assets toward 15% of their statutory capital and surplus levels.
FEB 04, 2009
Iowa’s insurance commissioner yesterday posted a bulletin that would allow life insurers in that state to apply deferred tax assets toward 15% of their statutory capital and surplus levels. That’s up from a maximum of 10% in the current statutory accounting principles. Life and property/casualty carriers domiciled in Iowa will now be allowed to estimate the amount of deferred tax assets looking three years ahead instead of the one-year limitation imposed by current statutory accounting principles, said Commissioner Susan E. Voss. The new accounting practice would be applicable for reporting periods ending on or after Dec. 31, 2008, and will expire on Dec. 15, 2009. Carriers who want to use the practice must ask the Iowa department for permission. Deferred tax assets, or DTAs, on a carrier’s balance sheets can offset the losses accumulated in a given period so as to lower income tax expenses in future periods. A company has to have more than a 50% probability that it will be profitable in the next fiscal period before that DTA can be applied. Ms. Voss’ announcement of the new practices in her state follows on the heels of the Kansas City, Mo.-based National Association of Insurance Commissioners’ rejection of a reserve relief proposal by the American Council of Life Insurers in Washington. That proposal also requested that regulators permit DTAs to apply to 25% of insurers’ statutory capital and surplus and that carriers be permitted to project the amount of DTAs over a five-year period. A number of regulators, including Alfred W. Gross, commissioner of the Virginia Bureau of Insurance, objected to raising the 10% limit, arguing that DTAs are illiquid and that allowing such assets to be counted this way would put policyholders at risk. Ms. Voss vetoed all of the ACLI’s proposals last week — including the DTA measure — but allowed for less conservative accounting practices in her state, much to the chagrin of consumer advocates. “Your action weakens the financial protections for insurance commissioners because insurers will now be able to count a greater share of illiquid assets as part of admitted assets and statutory capital, and deferred tax assets cannot be converted to cash if needed immediately,” Birny Birnbaum, executive director of the Center for Economic Justice in Austin, Texas, wrote in a Feb. 3 e-mail to the commissioner. Ms. Voss will revise the bulletin so that companies get relief on a case-by-case basis. A list of life and health insurers domiciled in Iowa is available here: http://www.iid.state.ia.us/ia_company_listing/results.asp?Type=5&Pageno=0&linksback=companymain

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