Summary: GAO presented its views on the taxation of the property/casualty insurance industry, covering four areas: (1) a previous report and its recommendations; (2) the impact of current tax provisions on the industry; (3) the industry's pricing strategies; and (4) a financial overview of the industry. The GAO report on taxation of the industry indicated that Congress needed to reexamine: (1) the deduction currently allowed for loss reserves; (2) the practice of deducting all of the expenses associated with the sale and renewal of insurance policies; and (3) the protection against loss account, which defers a company's income to provide a cushion for large loss. GAO found that because of the tax-exempt income, deductions, and current tax treatment accorded loss reserves and expenses, many property/casualty companies have not paid federal income taxes for years and have qualified for refunds or the ability to carry losses incurred for tax purposes. GAO also found that property/casualty companies had positive net gains yet paid very small percentages in federal income taxes and larger companies paid lower percentages of taxes than smaller companies. GAO believes that the implementation of the changes it suggested to Congress would result in a better match of the industry's revenues and expenses and represent a more rational approach to its taxation.
