Tax Reform Update
On March 4, Senators Mike Lee (R-UT) and Marco Rubio (R-FL) released an overview of a tax reform plan titled Economic Growth and Family Fairness Tax Reform Plan. The plan would consolidate the corporate tax system into a single layer and lower the maximum rate to 25% on both corporate and pass-through entities. It also would allow businesses to immediately deduct 100% of capital expenditures instead of multi-year depreciation and would “eliminate unfair carve-outs benefiting large corporations and high-tax states.” The plan did not identify any specific insurance-related proposals.
On March 11, Senate Finance Committee Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR) announced a bipartisan effort to begin soliciting ideas from interested members of the public and stakeholders regarding tax reform. The announcement provides a series of email addresses for submitting comments and states that submissions will be accepted through April 15.
In early March, the ACLI again organized an advocacy group to visit Congress.
Bancorp Services v. American General
In December 2014, Bancorp Services LLC (Bancorp) and an affiliated entity, Addle Management LLC, filed a lawsuit against American General Life Insurance Company alleging misappropriation of trade secrets and breach of confidentiality agreements. The controversy centers around a stable value protection (SVP) technology that Bancorp’s majority owner developed and owned through a separate company.
Bancorp asserts that it took significant steps at all times to protect the secrecy of its proprietary SVP technology, including requiring its employees, employees of partners and affiliates, and all existing and potential business partners to enter into strict non-disclosure and confidentiality agreements. According to Bancorp’s complaint, American General entered into such binding non-disclosure agreements in 1998 and 2010.
Bancorp alleges that it disclosed details of its SVP technology to American General in August 2012, and that American General subsequently misappropriated the technology to create its own product offering. As a direct and proximate result, Bancorp alleges damages of not less than $5 billion.
On March 6, American General submitted a motion to dismiss this matter. American General’s arguments include:
- Another indispensable affiliate of Bancorp cannot be joined due to a binding agreement to arbitrate any disputes;
- Bancorp fails to state what trade secrets or confidential information were disclosed to and improperly used by American General;
- Bancorp fails to adequately plead any damages; and
- Bancorp’s affiliated entity that owned the SVP technology was not a third-party beneficiary to the 2010 NDA.
Bancorp has until April 7 to file an opposition to the motion to dismiss.
Case Reference: Bancorp Services, LLC and Addle Management LLC v. American General Life Insurance Company No. 1:14-cv-09687 (S.D. NY)
FASB Tentative Decisions for Insurance Project
Beginning in 2007, FASB began working collaboratively with the IASB on updating accounting principles for insurance contracts. In June 2013, FASB released an Exposure Draft Proposed Accounting Standards Update Insurance Contracts (Topic 834). In response to comments received on the exposure, FASB chose to largely withdraw from the IASB project and pursue more targeted improvements to US GAAP for insurance contracts.
In February, FASB published tentative board decisions for its Insurance Project – Targeted Improvements to the Accounting for Long-Duration Contracts. These decisions apply to the issuer of insurance contracts; they do not alter the accounting treatment for owners of insurance contracts.
Tentative decisions impact various assumptions including discount rates and amortization of DAC.
We are reaching out to BOLI insurers to gauge the perceived materiality of these adjustments and will continue to monitor FASB’s insurance project.
JCT Revenue Estimates for Obama Budget Proposal
On March 6, the Joint Committee on Taxation (JCT) released its estimated budget effects of the President’s Fiscal Year 2016 Budget Proposal. Below is a comparison of the JCT’s projections to Treasury’s projections for certain insurance-related proposals from the last two years. The estimates are for the respective ten-year periods (i.e., 2015–2024 and 2016–2025).
|Proposal||2015 Fiscal Year Projections Obama/Treasury||2015 Fiscal Year Projections Obama/JCT||2016 Fiscal Year Projections Obama/Treasury||2016 Fiscal Year Projections Obama/JCT|
|264(f) Interest Expense Disallowance||$5.5 billion||$7.4 billion||$6.3 billion||$7.2 billion|
|Proration Rules for Life Insurance Companies||$6.3 billion||$5.9 billion||$7.5 billion||$6.1 billion|
Transfer for Value
|$500 million||$900 million||$500 million||$1 billion|