As noted in a previous Eversheds Sutherland Legal Alert, on November 2, the House Ways and Means Committee released the “Tax Cuts and Jobs Act” (H.R. 1) (the House Bill). An amended version of the House Bill (the Ways and Means Markup) was reported out of the Ways and Means Committee on November 10. On November 9, the Joint Committee on Taxation issued a description of the Senate version of the “Tax Cuts and Jobs Act” (the Senate Bill). The Senate is not expected to release actual bill language prior to the Markup by the Senate Finance Committee. Instead, the Markup will be based on the Joint Committee’s description.

Like the House Bill, the Senate Bill would reduce the corporate tax rate to 20%, but, unlike the House Bill, only beginning in 2019. It also would make changes to a number of insurance-specific provisions and includes certain international provisions that could have significant impacts on insurance companies.

Senator Tim Scott has introduced an amendment to the Senate Bill (the Scott Amendment) which would:

  • For contracts described under section 807(c)(1),1 apply a 5% “haircut” to reserves for those contracts reported in the National Association of Insurance Commissioners annual statement subject to a cash value/deposit floor determined on a seriatim basis (no deduction for asset adequacy or deficiency reserves would be allowed);
  • Impose a single rate of 70% for determining the company share in both the separate and general account of life insurance companies; and
  • Extend the amortization period for deferred acquisition costs from 10 years to 15 years, maintain the three product categories, and modify the rates by increasing the capitalization rates 20% for new premiums.

At this time, the Scott Amendment has not been incorporated into the Senate Bill.

What follows is a side-by-side comparison of provisions in the House Bill and the Senate Bill (without taking into account the Scott Amendment) of particular interest to the insurance industry.

Life Insurance Company Provisions