SSAP No. 101 update and Q&A observations: Admissibility calculation

Continued from SSAP No. 101 update and Q&A observations: Statutory valuation allowance

Admissibility calculation

The admissibility calculation under SSAP No. 101 admits adjusted gross deferred tax assets (gross deferred tax assets less applicable statutory valuation allowance) based upon a three-component admission calculation in an amount equal to the sum of paragraphs 11.a., 11.b., and 11.c. SSAP No. 10R also admitted adjusted gross deferred tax assets under a three-component admission calculation under paragraphs 10.a., 10.b., and 10.c. However, under SSAP No. 10R, reporting entities could elect increased admissibility under paragraph 10.d. if certain risk-based capital criterion were met, and include paragraph 10.e. as part of the admissibility calculation. There is no such election under SSAP No. 101. The admissibility calculation is performed on a separate company, reporting entity basis.

Paragraph 11.a.

Paragraph 11.a. of SSAP No. 101 admits adjusted gross deferred tax assets equal to the amount of federal income taxes paid in prior years that can be recovered through loss carrybacks for existing temporary differences that reverse during a timeframe corresponding with IRS tax loss carryback provisions, not to exceed three years. Therefore, SSAP No. 101 is more in line with what happens on a reporting entity’s tax return, as it admits adjusted gross deferred tax assets based upon IRS tax loss carryback provisions. This component of the admissibility calculation is entity specific, as a life entity has a three year carryback period for ordinary losses and capital losses, whereas a non-life entity has a two year carryback period for ordinary losses and a three year carryback for capital losses.

The amount of federal taxes paid includes taxes that were or will be reported on the reporting entity’s federal income tax return for the periods included in the carryback period. This includes both regular tax and alternative minimum tax, but does not include any interest or penalties that may be included on the tax return. It also includes tax loss contingencies established in accordance with the provision of SSAP No. 5R. SSAP No. 101 clarifies that a reporting entity that files a consolidated federal income tax return with its parent should look to the amount of taxes it paid (or were allocated to it) as a separate legal entity in determining the admitted deferred tax asset under paragraph 11.a. It is also limited to the amount that the reporting entity could reasonably expect to have refunded by its parent.