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NAMIC Applauds Legislation to Adjust Tax Code for Small Insurers

Source: NAMIC

Posted on 17 Jun 2011

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Legislation introduced on Wednesday in the U.S. House of Representatives to adjust the tax code will increase access to insurance for rural communities and foster economic growth, according to the National Association for Mutual Insurance Companies (NAMIC).

“In 1986 Congress sought to provide certain small property/casualty insurance companies a tax option to ensure predictability and stability for their policyholders,” said Jimi Grande, senior vice president of federal affairs for NAMIC. “However, as often happens in Washington, we now need to go back and fix this provision to account for inflation. Not indexing an important tax provision like this would amount to a tax hike for these companies.”

Introduced by Reps. Erik Paulsen, R-Minn., along with co-sponsors Joe Donnelly D-Ind., and Aaron Schock R-Ill., the legislation would increase the alternative tax liability limitation for small property/casualty insurance companies.

“We commend Rep. Paulsen for championing this legislation and thank the original cosponsors, Reps. Donnelly and Schock, for their hard work and dedication to America’s rural communities.” Over 600 companies across the country could be affected without this adjustment, including 85 in Minnesota, 30 in Indiana and 62 in Illinois. “Mutual companies like these exist solely to serve the insurance needs of their policyholders, and especially for these smaller companies, play a vital role in their communities.”

Under Section 831(b) of the Internal Revenue Code, certain small property/casualty insurers with direct or net written annual premiums not exceeding $1.2 million may elect to be taxed on their net investment incomes. This provision was enacted in 1986, but has not been adjusted to reflect the last 25 years of inflation. If it were indexed in order to account for inflationary changes since 1986, the investment income election would be $2,390,000.

“This legislation simply corrects a flaw in the tax code,” Grande said. “By not indexing this election threshold to inflation, the current code will make it more and more difficult for these small companies-who rely on the alternative option to stay in business and protect their policyholders.