Modco - Modified Coinsurance
- What happened under TEFRA? Several things:
- We lost MODCO 820 forever.
- We had a deceptively modest reduction in 818(c)2.
- A lot of the teeth were taken out of reinsurance as a tax planning tool.
- Universal Life was given legitimacy through 101(f).
- In terms of Anderson's Taxation Horseman, it is now clearly possible for the industry to provide a competitive rate of interest return to policyholders--at least on new money products.
- The matter of the existing portfolio of assets is another question, but at least on new money products, the industry is in the position of being able to offer competitive products.
- In addition, the 818(c)2 adjustment is available for the first time to many companies.
-- William R. Britton, Jr., Vice President and Principal of the Tillinghast firm
1983 - SOA - Individual Life Insurance, Society of Actuaries - 22p
- At least one interpretation within the California Department is that many modco type treaties do not appropriately transfer liability to the reinsurer. Would you agree with either of the following analyses?
- Company and Reinsurer enter a co/modco treaty covering a universal life block of business.
- As experience unfolds the reinsurer receives a risk and profit charge on each settlement due.
- This is the only cash that ever transfers hands.
- Company recaptures the business when the coinsurance reserve set up by Reinsurer decreases to zero.
- ⇒ Does this mean no liability was transferred to the reinsurer?
1992-1A, NAIC Proceedings
- 1981 - GAO - Billions Of Dollars Are Involved In Taxation Of The Life Insurance Industry -- Some Corrections In The Law Are Needed, Government Accountability Office - 242p
- 1 / For example, "Prudential Insurance Company of America , the nation's largest insurance company, paid $ 380.2 million in federal income taxes in 1979. Last year, despite the growth of its business, Prudential's tax bill plummeted to $120 million, less than one-third of the 1979 total . . . The tax magic is accomplished through transactions known as 'modified coinsurance.' Richard V. Minck, [an executive of the industry's chief trade group says he believes that the tax loss to the federal government from [modified coinsurance transactions] runs in the billion or billion-and-a- half range.
- Daniel Hertzberg, "Life Insurers Cut Federal Income Taxes Using Special Reinsurance Arrangement, "Wall Street Journal, May 20, 1981, p. 14.
- For a further discussion of the use of modified coinsurance to reduce Federal income taxes, see Herbert E. Goodfriend, "Odd Men Out," Barron's, January 12, 1981, p. 28 .
- 1 / For example, "Prudential Insurance Company of America , the nation's largest insurance company, paid $ 380.2 million in federal income taxes in 1979. Last year, despite the growth of its business, Prudential's tax bill plummeted to $120 million, less than one-third of the 1979 total . . . The tax magic is accomplished through transactions known as 'modified coinsurance.' Richard V. Minck, [an executive of the industry's chief trade group says he believes that the tax loss to the federal government from [modified coinsurance transactions] runs in the billion or billion-and-a- half range.
- 1982 0414 - GAO - Letter - GAO to Dan Rostenkowski (D-IL), Chairman, Joint Committee on Taxation - re: Modified Coinsurance Used to Reduce Taxes - 9p
- 1982 0318 - GAO - Statement of Morton A. Myers - Director, Program Analysis Division Before The Senate Committee on Finance on Modified Coinsurance, Government Accountability Office - 13p
- By entering into modified coinsurance agreements under Section iv, 820 of the Internal Revenue Code, some insurance companies--most notably the very large mutual companies --are able to convert investment income on which they pay taxes into underwriting gains on which they pay little, if any, taxes. This was not the intent of Congress when section 820 was included in the code.
- It was intended to avoid possible double taxation when these coinsurance arrangements are used.
- Without a section 820 election double taxation could occur because both the original insurer and the company sharing the risk would be subject to tax on some of the same income.
- By entering into modified coinsurance agreements under Section iv, 820 of the Internal Revenue Code, some insurance companies--most notably the very large mutual companies --are able to convert investment income on which they pay taxes into underwriting gains on which they pay little, if any, taxes. This was not the intent of Congress when section 820 was included in the code.
- 1982 - congress.gov/bill/97th-congress/senate-bill/2353?s=1&r=10
- S.2353 - A bill entitled "The Life Insurance Taxation Act of 1982."
- 97th Congress (1981-1982)
- Sponsor: Sen. Bentsen, Lloyd M. [D-TX] (Introduced 04/01/1982)
- Committees: Senate - Finance
- 1959 - GOV - 112 PUBLIC LAW 86-69-JUNE 25, 1959 [73 STAT.https://www.govinfo.gov › STATUTE-73-Pg112
- a modified coinsurance contract (as defined in subsection (b)) shall be ... Be it enacted hy th^e Senate and House of Representatives of the. United States of ... - 30 pages