Accounting Standard Updates

12 Days of SSAP: Tax Cuts and Jobs Act – Loss Reserve Discounting

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As the holidays approach, JLK Rosenberger is taking a new perspective on a holiday classic – the Twelve Days of Christmas. Rather than filling your head with turtle doves and gold rings, we are going to instead focus on the latest changes to SSAP and how they will impact your insurance company in 2019 and beyond.

Tax Cuts and Jobs Act – Loss Reserve Discounting

The Tax Cuts and Jobs Act (TCJA) that was signed into law in 2017.  One provision within the act that is relevant to P&C insurers is the TCJA modifies the computation of loss reserve discounting.  Prior to the passing of the TCJA, companies used the applicable federal midterm rate to discount loss reserves. The TCJA changed the basis to the corporate bond yield curve. In addition, the TCJA established and extended for certain lines of business, the period for determining claim payment patterns and eliminates the ability for companies to use their historical loss patterns.

P&C companies are required to restate their reserves as of December 31, 2017, and spread the reduction over an eight-year period.