Reinsurance -- The Industry's federal income tax problems;

              REINSURANCE - THE INDUSTRY'S FEDERAL INCOME TAX PROBLEMS
by Francis C. Oatway, Partner Executive Office
Presented before the 49th International Conference of the Insurance Accounting and Statistical Association, Boston, Massachusetts — May 1971
As I reflected on recent tax developments affecting the reinsurance industry that would be of interest for discussion at this seminar, I saw what seemed to me to be a great paradox. This paradox involves a new position taken by the Internal Revenue Service, one not limited to the insurance industry, but one that ostensibly affects all taxpayers. The new position seems to be working completely at cross purposes with the thrust of Internal Revenue Service developments, both new and old, that affect the reinsurance industry. Let me explain.
AN OVERALL VIEW OF THE INDUSTRY'S PROBLEMS
The tax problems of the entire property and liability insurance industry, both primary and reinsurance, can, in my view, basically be reduced to one: A tax accounting problem. This is an area of great turbulence for all taxpayers, but it is made particularly turbulent for the insurance industry by the general lack of definition of what is or is not proper tax accounting for a property and liability insurance company.
• Accounting Method Conformity in General The specific Internal Revenue Service position that raises the paradox is not even a proposed regulation at this stage but rather is simply a position published through an Internal Revenue Service announcement.1 For taxpayers generally, the Internal Revenue Service has announced an intention to pursue the objective of conforming income tax and financial statement accounting methods and techniques. The National Office has imposed a condition (when approving a request for permission to change a tax accounting method) that the proposed method be used not only for income tax purposes but also for book purposes and in the preparation of financial statements reporting the results of operations to shareholders. This is the immediate thrust of the Internal Revenue Service announcement and represents somewhat of a radical