LB&I Tier III Issue: Premium Deficiency Reserves
Premium Deficiency Reserves
Industry: Financial Services
The issue concerns a reserve required to be established by health, life and property casualty companies to book all additional liabilities and expenses associated with any contract that will produce a loss during the subsequent year.
The deficiency reserves are not allowed to be included as part of the premiums earned calculation and they are not deductible as losses incurred under IRC Section 832(c)(4). The IRC and underlying Regulations make it extremely clear that this reserve cannot be included within the UPR, and for the reserve to be claimed as losses or expenses incurred under IRC 832(b)(5) the loss event must have occurred by the valuation date, and loss events to be incurred during future periods cannot be included within the computation of losses incurred.
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