Accounting Standard Updates

Tax Reform Impact on SSAP 101

Statutory Accounting Principles (E) Working Group Issues Guidance on Tax Reform for Insurance Companies – 2018 Federal Income Tax Changes on SSAP No. 101-Income Taxes

The tax law was signed on December 22, 2017. Many of the amendments are to take effect in 2018, but there are sections that take effect on the date the bill was signed. On January 10, 2018, the Statutory Accounting Principles (E) Working Group voted to approve the following non-substantive revisions to SSAP No. 101-Income Tax. JLK Rosenberger has provided a summary of key federal tax changes below.

Key Changes to SSAP No. 101

  • Reduced Federal Tax Rate – Corporate federal income tax rate will decline from 35% to 21%. This will reduce future current federal income taxes. This will also reduce gross deferred tax assets (DTAs) and deferred tax liabilities (DTLs).
  • Carryback Provisions – Ability to carry back net operating losses (NOLs) for life entities will be eliminated. Non-life entities can continue to carryback NOLs 2 years. (The life entity changes in NOLs are specific to operating losses and are not expected to capture capital losses. The ability for non-life entities to continue with the carryback provisions was a change incorporated in the final bill.)
  • Carryforward Provisions – The NOL carryforward period for life entities will change from 20 succeeding taxable years to an indefinite period, with an 80% taxable income limitation. The NOL carryforward period for non-life companies will continue to be limited to 20 years and will be exempt from the 80% taxable income limitation that is imposed on life entities.
  • Alternative Minimum Tax – Repeal of the alternative minimum tax (AMT), with transition provisions for accelerated recovery of any AMT credit carryforward that exists as of Dec. 31, 2017.

The change in the federal income tax rate has an immediate impact on deferred tax calculations. DTAs and DTLs are measured using enacted tax rates that are expected to be realized when the DTAs/DTLs are settled. With regards to RBC, there are currently two types of tax factors: 26.25% and 35%. Revisions to these factors will need to be considered by the Capital Adequacy (E) Task Force.

The new tax laws are expected to have the greatest impact to life companies. With the new tax law, carryback provisions for life entities have been eliminated and can now carryforward NOLs indefinitely. Prior to the changes, life entities were permitted to carryback NOLs 3-years. P&C entities will continue to have 2-year carrybacks and 20-year carryforwards for NOLs.

You can find the full WAPWG agenda at

The new federal tax laws present many challenges and opportunities for insurance companies and are certain to have an impact on your December 31, 2017 annual reporting and beyond.