Instructions For Form 1120-Pc - 2001 (Page 17 of 20) in pdf

Lines 2b and 4b. Discounted unpaid

purposes of the preceding sentence,

loss payment pattern for 1999 and 2000

premiums received during any calendar

losses outstanding. Enter all

are published in Rev. Proc. 99-36,

discounted unpaid losses as defined in

year will be treated as received in the

1999-42 I.R.B. 509 and Rev. Proc.

section 846.

middle of such year.

2000-44, 2000-43 I.R.B. 409.

Section 846 provides that the amount

Line 1. Enter gross premiums written on

Section 846(e) allows corporations

of discounted unpaid losses must be

insurance contracts during the tax year,

having sufficient historical experience to

computed separately by each line of

less return premiums and premiums paid

determine a loss payment pattern to elect

business (multiple peril lines must be

for reinsurance. See Regulations section

under certain circumstances to use their

treated as a single line of business) and

1.832-4.

own historical experience. If this election

by each accident year and must be equal

is made, the loss payment patterns will be

Lines 2a and 4a. Include on lines 2a and

to the present value of those losses

based on the most recent calendar year

4a:

determined by using the:

for which an annual statement was filed

1. All life insurance reserves, as

1. Amount of the undiscounted unpaid

before the beginning of the accident year.

defined in section 816(b) (but determined

losses,

The election will not apply to any

under section 807) and

2. Applicable interest rate, and

international or reinsurance line of

2. All unearned premiums of a Blue

3. Applicable loss payment pattern.

business. If the corporation makes this

Cross or Blue Shield organization to

election, check the “Yes” column for

Special rules apply with respect to:

which section 833 applies.

•

question 7 in Schedule I, Other

Unpaid losses related to disability

Information. For more information, see

Lines 2b and 4b. Include on lines 2b and

insurance (other than credit disability

section 846(e), Regulations section

4b, 90% of unearned premiums for

insurance),

•

1.846-2, and Rev. Proc. 92-76, 1992-2

insurance against default in the payment

Noncancelable accident and health

C.B. 453.

of principal or interest on securities

insurance,

•

described in section 165(g)(2)(C) (relating

Cancelable accident and health

Note. There is a special application of

to worthless securities) with maturities of

insurance, and

the “Fresh Start” provision for an

•

more than 5 years.

International and reinsurance lines of

insurance company that is not subject to

business.

tax under section 831(a) for its first tax

Lines 2c and 4c. The amount of

With regard to the special rules for

year beginning after December 31, 1986,

discounted unearned premiums at the

discounting unpaid losses on accident

because (1) it is described in section

end of any tax year must be the present

and health insurance (other than disability

501(c) or (2) it is subject to tax under

value of those premiums (as of such time

income insurance), unpaid losses are

section 831(b) on its investment income.

and separately with respect to premiums

assumed to be paid in the middle of the

received in each calendar year)

If the insurance company later

year following the accident year.

determined by using:

becomes subject to tax under section

Generally, the amount of undiscounted

1. The amount of the undiscounted

831(a), the rules relating to the Fresh

unpaid losses means the unpaid losses

unearned premiums at such time;

Start under the discounting provisions are

and unpaid loss adjustment expenses

2. The applicable interest rate; and

applied by treating the last tax year before

shown in the annual statement. However,

3. The applicable statutory premium

the year in which the insurance company

see Regulations sections 1.846-1(a)(1)

recognition pattern.

becomes subject to tax under section

referring to Regulations section

831(a) as the insurance company’s last

1.832-4(b) relating to the determination of

Lines 2d and 4d. Include on lines 2d and

tax year beginning before 1987. See

unpaid losses.

4d, 80% of the total of all unearned

section 1010(e) of the Act of 1988 and

premiums not reported on lines 2a

Under section 832(b)(5)(A), unpaid

Notice 88-100, 1988-2 C.B. 439.

through 2c, or 4a through 4c,

losses must be adjusted to take into

Lines 6 and 7. Estimated salvage and

respectively.

account estimated recoveries due to

reinsurance recoverable. The salvage

salvage and reinsurance for those losses.

A reciprocal or interinsurer required

and reinsurance rates for 2000 are

If the amounts shown in the annual

under state law to reflect unearned

published in Rev. Proc. 2000-45, 2000-43

statement were determined on a

premiums on its annual statement net of

I.R.B. 417. The 2001 estimated salvage

discounted basis and if the extent to

premium acquisition expenses, should

and reinsurance rates are published in

which these losses were discounted can

increase its unearned premiums by the

Rev. Proc. 2001-61, 2001-53 I.R.B. 653.

be determined on the basis of information

amount of such acquisition expenses

Also see Regulations section 1.832-4.

disclosed on or with the annual

prior to making the computation on lines

statement, the amount of the

Line 9. Tax-exempt interest subject to

2d and 4d. See section 832(b)(7)(E).

undiscounted unpaid losses must be

section 832(b)(5)(B). Enter the amount

Line 6. Transitional adjustments apply to

recomputed to eliminate any reduction

of tax-exempt interest received or

companies which become taxable under

caused by such discounting. In no event

accrued during the tax year on

section 831(a). See section 832(b)(7)(D)

can the amount of discounted unpaid

investments made after August 7, 1986.

for more information.

losses with respect to any line of business

For information regarding the

for an accident year exceed the total

determination of the acquisition date of an

amount of unpaid losses with respect to

investment, see the instructions for

Schedule F—Losses

any line of business for an accident year

Schedule C.

as reported on the annual statement. Also

Incurred

see Regulations section 1.832-4(d)

regarding increasing unpaid losses shown

Line 1. Losses paid. Enter the total

Schedule G—Other

on the annual statement by salvage

losses paid on insurance contracts during

recoverable. Also see Rev. Proc. 92-77,

Capital Losses

the tax year less salvage and reinsurance

1992-2 C.B. 454.

recovered during the tax year.

Capital assets are considered sold or

The applicable interest rate for each

Lines 2a and 4a. Unpaid losses on life

exchanged to provide funds to meet

calendar year and the applicable loss

insurance contracts. Unpaid losses

abnormal insurance losses and to pay

payment pattern for each accident year

must be adjusted for recoveries of

dividends and make similar distributions

for each line of business are determined

reinsurance. The amounts of expected

to policyholders to the extent that the

by the IRS.

recoveries should be estimated based on

gross receipts from their sale or exchange

the facts in each case and the

The applicable interest rate and loss

are not more than the amount by which

corporation’s experience with similar

payment patterns for 2001 are published

the sum of dividends and similar

cases. See Regulations section

in Rev. Proc. 2001-60, 2001-53 I.R.B.

distributions paid to policyholders, losses

1.832-4(b).

643. The applicable interest rates and

paid, and expenses paid for the tax year

-17-

Instructions For Form 1120-Pc - 2001 Page 17

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