Federal Budget Proposals
Both the House and Senate Budget Committees released federal budget proposals in March. Both proposals indicate a desire to revisit corporate taxation with an eye toward eliminating “loopholes” and elaborate corporate “tax planning.” The Fiscal Year 2014 Senate Budget Resolution includes a section titled, “Reducing the deficit by eliminating wasteful business tax loopholes.” However, it does not specifically reference any tax preferences related to the insurance industry. It focuses on off-shore tax planning.
The Fiscal Year 2014 Budget Resolution from the House Budget Committee includes a section on tax reform that identifies, among others, the following points:
- Simplify the tax code to make it fairer to American families and businesses;
- Repeal the Alternative Minimum Tax; and
- Reduce the corporate tax rate to 25 percent.
As noted in last month’s LRA update, Senator Shelby (R-AL) introduced a flat tax bill in January. No further action has been taken on that bill.
Insurance Industry Lobbying Efforts
In late February, a number of insurance industry associations, including ACLI and AALU, organized a lobbying effort in Washington D.C. The groups were not lobbying regarding any specific legislation or regulatory policy, but hoped to reiterate the importance of life insurance products and the need to retain existing preferences.
On March 22, senators voted 99-0 in support of a non-binding measure calling for an end to implicit subsidies the credit markets give banks over $500 billion because of the perception that the federal government would bail them out. The measure was introduced by Senators David Vitter (R-LA) and Sherrod Brown (D-OH). The senators are expected to introduce further legislation in April that would impose additional capital requirements on financial institutions with more than $500 billion in assets.
Last month, we reported on House Bill 613 which would increase capital requirements for bank holding companies with more than $50 billion in assets. That bill was referred to committee in February and no further action has taken place yet.
Oregon H.B. 3367
On February 25, a bill was introduced in the Oregon House of Representatives that would add to taxable income for Oregon tax purposes, amounts from life insurance contracts or annuity policies, excluded from federal taxable income because of operation federal law, including sections 72, 101, 7702 and 7702A of the Internal Revenue Code.
On March 4, it was referred the House Committee on Revenue. As with previous, similar state proposals (e.g., Illinois and New York), we are bringing this to the attention of leading BOLI underwriting carriers to confirm they are aware of, monitoring and taking action as necessary. Fortunately, no previous legislative proposals along these ill-informed and draconian lines have progressed through a state’s legislature.
Dodd-Frank Stress Test Reporting Requirements ($10 Billion – $50 Billion)
On March 11, the OCC proposed reporting requirements for Dodd-Frank Annual Stress Testing (DFAST) for institutions with consolidated assets between $10 billion and $50 billion. The materials include Excel-readable templates for reporting variables used and the results of the stress testing as well as an instruction document.
Comments are requested by May 10, 2013. Please note that reporting requirements for institutions with more than $50 billion in assets were addressed in an August 2012 proposal. We are happy to discuss possible approaches for including BOLI assets in the stress testing processes with interested banks.
Hunnicutt v Stauffer Management – Dismissed
This matter was dismissed with prejudice on March 1, 2013 because the parties executed a settlement agreement. Details of the settlement were not disclosed.
FASB Extends Comment Deadline on Proposal for Accounting for Credit Losses on Financial Assets
On March 28, FASB extended the comment deadline for its proposal to improve financial reporting about expected credit losses on loans and other financial assets held by bank, financial institutions, and other organizations. The FASB’s proposed model would utilize a single “expected credit loss” measurement objective for the recognition of credit losses, replacing the multiple existing impairment models in U.S. GAAP.
The current models generally require that a loss be “incurred” before it is recognized. Under the FASB proposal, management would be required to estimate the cash flows that it does not expect to collect using all available information, including historical experience and reasonable and supportable forecasts about the future.
It is worth noting that, on March 7, the IASB issued a proposal on credit losses, which differs in some respects from the FASB proposal. Stakeholders have expressed a desire to review both proposals and provide coordinated feedback.
The new comment deadline is May 31, 2013. Reference: Proposed Accounting Standards Update, Financial Instruments—Credit Losses (Subtopic 825-15)
NAIC 2013 Committee Charges
On March 1, 2013, the NAIC Executive Committee adopted the 2013 Committee Charges for various committees. While many of the projects may have indirect impact on BOLI/COLI carriers and products, the following appear noteworthy specifically for BOLI/COLI.
The Separate Account Risk (E) Working Group (a working group of the Financial Condition Committee) again identifies the need to study the need to modify existing regulatory guidance related to separate accounts where in recent years various products and contract benefits have increased the risk to the general account. While the committee charge doesn’t state specific products that are at the center of this inquiry, we believe the NAIC is focused on non-variable, or so-called hybrid products (both life insurance and annuities), and/or variable annuities with embedded guarantees. Traditional, variable separate account BOLI products are not likely implicated or affected by this development. At the conclusion of the study, the working group is to provide a recommendation to the committee. This is marked as “Important.”
The Receivership and Insolvency (E) Task Force identifies, as “Essential,” a study of receivership issues related to separate accounts, including considering reporting needs for current separate accounts with respect to insulated and non-insulated products/assets.