P-C Insurer Tax Bill Passed By U.S. Senate

Washington

A tax reform long sought by the National Association of MutualInsurance Companies has taken a major step forward.

The U.S. Senate has advanced legislation that would raise thelimit under which small property-casualty companies may elect to betaxed solely on their level of taxable investment income.

Moreover, the proposed new limit which is $1.89 million inpremium, up from the current $1.2 million would be indexed forinflation.

The increase is contained in broader tax and trade legislation.David Winston, senior vice president with the Indianapolis-basedNAMIC, noted that the same provision also appears in the Houseversion of the legislation, which is still pending.

He said that if the House approves the legislation, which isstill problematic at this writing, there is a good chance that thetax reform NAMIC seeks will be in a final bill.

“NAMIC is very pleased with this development,” Mr. Winston said.“It is the result of a lobbying both in Washington and at thegrass-roots level.”

He noted that there has been a lot of consolidation among farmmutual companies, and many consolidated companies are coming upagainst the current $1.2 million limit.

These companies, Mr. Winston said, will be adversely affectedwithout an increase. He added that the current $1.2 million limithas been in effect since 1986.

The legislation advanced by the Senate also contains a modestchange in the tax exemption rules relating to small p-c companiesrecently enacted into law.

Under the new law, a small p-c carrier is tax-exempt if itsgross receipts do not exceed $600,000 and more than 50 percent ofits receipts are from insurance premiums.

The Senate bill would require that a p-c company derive morethan 60 percent of its gross receipts from insurance premiums toclaim the tax exemption.

Reproduced from National Underwriter Edition, May 14, 2004.Copyright 2004 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.