Discounting loss reserves for tax purposes clarification
Just want to make sure I understand this correctly... loss reserves on the balance sheet and in schedule P are NOT discounted, but for tax purposes we need to tax CY paid losses + change in discounted loss reserve amounts (since that is our updated future estimation of liabilities).
And do we use the treasury rates for each AY based on the corporate bond yield curve and industry payment pattern for discounting so that discounting is consistent throughout the insurance industry?
Comments
For a discussion of the ambiguity in he text regarding whether SAP discounts reserves, see the following:
https://battleacts6us.ca/vanillaforum6us/discussion/605/statutory-loss-reserves-are-booked-at-their-nominal-undiscounted-value#latest
Losses are not taxed. Profit (income), which is premium less losses less expenses, is taxed. When you discount the reserves, overall loss decreases, and profit duly increases, and this is what the IRS is after.
The answer to your second question is yes.