The New York Department of Financial Services (DFS) announced yesterday that it will adopt principle-based reserving (PBR) for life insurers in 2018. The decision puts New York in line with the other 45 states that have adopted the new life reserve methodology. These other states have a “go live” date in 2017.
PBR involves both deterministic and stochastic methodologies and can produce higher or lower life insurance reserves than the current methodologies used by U.S. life insurers to compute statutory (“stat”) life insurance reserves.
Read the DFS press release
Tax professionals expect life insurers will welcome New York’s decision to follow suit with other states in making PBR the approved statutory life reserving methodology. New York’s insurance regulators had been reluctant to endorse PBR, causing uncertainty for New York regulated life insurers regarding the potential requirement to use multiple statutory reserving methodologies. New York’s adoption of PBR will likely alleviate insurer concerns and simplify compliance with the PBR regime.
Life insurers have raised questions with the IRS regarding how PBR will affect the computation of life insurance reserves for federal income tax purposes. The IRS has a PBR item on its current Priority Guidance Plan and is working to provide timely guidance regarding how PBR will affect life insurance reserve computations under Code section 807. Multiple issues—including how to handle the transition to PBR and whether the stochastic element of the PBR computation will be included in tax reserves—are open and will hopefully be addressed in a series of IRS guidance. The timing of the forthcoming guidance is uncertain, but some guidance is expected prior to December 31, 2016.
For more information contact a tax professional with KPMG’s Washington National Tax:
Sheryl Flum | +1 (202) 533-3394 | firstname.lastname@example.org
Fred Campbell-Mohn | +1 (212) 954-8316 | email@example.com
Jean Baxley | +1 (202) 533-3008 | firstname.lastname@example.org
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.