Taxation

Question 1

Tax Basis Earned Premium (TBEP) =

Answer 1

Written Premium - 0.8(Change in UEPR) = Statutory Earned Premium + 0.2(Change in UEPR)

Question 2

Tax Basis Incurred Loss (TBIL) =

Answer 2

Paid Losses + Change in Discounted Reserves = Statutory Incurred Losses - Change in Reserve Discount

Question 3

proration of tax favored income

Answer 3

add back (5.25%/top corporate tax rate) = 25% of the deduction

Question 4

Base Erosion and Anti-Abuse Tax (BEAT)

Answer 4

operates as a type of “minimum tax” that is added to the regular tax liability when a domestic taxpayer obtains a “base erosion tax benefit” as a result of
making a “base erosion payment” to a related foreign party

Question 5

how to calculate BEAT charge

Answer 5

1) determine if subject to BEAT
2) compute regular tax of U.S. companies
3) compute modified taxable income by adding back deductible or excludible payments made to a foreign affiliate
4) apply the BEAT tax rate to modified taxable income
5) BEAT is the excess of BEAT rate applied modified taxable income over regular tax liability

Question 6

components of undiscounted loss reserves

Answer 6

1) undiscounted loss reserves from Schedule P, grossed up for tabular reserves if necessary
2) discount rate from U.S. Treasury, based on corporate bond yield curve
3) paid loss development pattern, determined every five years by the IRS based on industry data

Question 7

impacts of TCJA (4)

Answer 7

• decrease in the corporate tax rate
• removed ability to use of company-specific payment patterns
• change in how discount rate is determined
• addition of the Base Erosion and Anti-Abuse Tax (BEAT)