Instructions For Form 1120-Pc - 2016 (Page 19 of 23) in pdf

premiums by Blue Cross and Blue Shield

to making the computation on lines 2d and

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

organizations described in section 833(c)

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

losses must be adjusted to take into

(2), and other organizations described in

account estimated recoveries due to

Line 6. Transitional adjustments apply to

section 833(c)(3), to those with an MLR of

salvage and reinsurance for those losses.

companies which become taxable under

85% or more. Organizations with an MLR

If the amounts shown in the annual

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

less than 85% are allowed to deduct only

statement were determined on a

80% of unearned premiums. See section

discounted basis and if the extent to which

Schedule F—Losses

833(c)(5), Regulations section 1.833-1

these losses were discounted can be

and Notice 2010-79 for more information.

determined on the basis of information

Incurred

Also see Notice 2012-37 applicable to the

disclosed on or with the annual statement,

first tax year beginning after December 31,

the amount of the undiscounted unpaid

Line 1. Losses paid. Enter the total

2012. See Regulations section 1.833-1(c)

losses must be recomputed to eliminate

losses paid on insurance contracts during

(2) for transition rules applicable to the first

any reduction caused by such

the tax year less salvage and reinsurance

tax year beginning after December 31,

discounting. In no event can the amount of

recovered during the tax year. Attach a

2013 and December 31, 2014.

discounted unpaid losses with respect to

statement that reconciles the amount

any line of business for an accident year

entered on line 1 to the amount reported

Line 1. Enter gross premiums written on

exceed the total amount of unpaid losses

on the corporation's annual statement.

insurance contracts during the tax year,

with respect to any line of business for an

less return premiums and premiums paid

Lines 2a and 4a. Unpaid losses on life

accident year as reported on the annual

for reinsurance. See Regulations section

insurance contracts. Unpaid losses

statement. Also see Regulations section

1.832-4.

must be adjusted for recoveries of

1.832-4(d) regarding increasing unpaid

reinsurance. The amounts of expected

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

losses shown on the annual statement by

recoveries should be estimated based on

4a the following.

salvage recoverable. Also see Rev. Proc.

the facts in each case and the

92-77, 1992-2 C.B. 454.

1. All life insurance reserves, as

corporation's experience with similar

defined in section 816(b) (but determined

The applicable interest rate for each

cases. See Regulations section

under section 807).

calendar year and the applicable loss

1.832-4(b).

payment pattern for each accident year for

2. Generally, all section 833

Lines 2b and 4b. Discounted unpaid

each line of business are determined by

organizations with an MLR of 85% or more

losses outstanding. Enter all discounted

the IRS. The applicable interest rate and

(discussed earlier) are permitted to enter

unpaid losses as defined in section 846.

loss payment patterns for 2016 will be

100% of unearned premiums on lines 2a

published in Rev. Proc. 2016-58, 2016-51

and 4a. Section 833 organizations with an

Section 846 provides that the amount

I.R.B. 839. The applicable interest rate

MLR of less than 85% must change to an

of discounted unpaid losses must be

and loss payment patterns for 2014 and

80% Unearned Premium Reserve. For

figured separately by each line of business

2015 are published in Rev. Proc. 2014-59,

more information, see Accounting

(multiple peril lines must be treated as a

2014-47 I.R.B. 843 as modified by Rev.

Methods, earlier.

single line of business) and by each

Proc. 2015-24, 2015-13 I.R.B. 822 and

accident year and must be equal to the

2015-52, 2015-45 I.R.B. 638, respectively.

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

present value of those losses determined

4b 90% of unearned premiums for

by using the:

Corporations having sufficient historical

insurance against default in the payment

experience to determine a loss payment

1. Amount of the undiscounted unpaid

of principal or interest on securities

pattern may, under certain circumstances,

losses,

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

elect under section 846(e) to use their own

2. Applicable interest rate, and

to worthless securities) with maturities of

historical experience (instead of the loss

more than 5 years. See section 832(b)(7)

3. Applicable loss payment pattern.

payment patterns determined by the IRS).

(B).

If this election is made, the loss payment

Special rules apply with respect to:

patterns will be based on the most recent

Lines 2c and 4c. The amount of

Unpaid losses related to disability

calendar year for which an annual

discounted unearned premiums at the end

insurance (other than credit disability

statement was filed before the beginning

of any tax year must be the present value

insurance),

of the accident year. The election will not

of those premiums (as of such time and

Noncancelable accident and health

apply to any international or reinsurance

separately with respect to premiums

insurance,

line of business. If the corporation makes

received in each calendar year)

Cancelable accident and health

this election, check the “Yes” column for

determined by using:

insurance, and

question 7 in Schedule I, Other

International and reinsurance lines of

1. The amount of the undiscounted

Information. For more information, see

business.

unearned premiums at such time;

section 846(e), Regulations section

With regard to the special rules for

2. The applicable interest rate; and

1.846-2, and Rev. Proc. 92-76, 1992-1

discounting unpaid losses on accident and

C.B. 453.

3. The applicable statutory premium

health insurance (other than disability

recognition pattern.

income insurance), unpaid losses are

Note. There is a special application of the

assumed to be paid in the middle of the

“fresh start” provision for an insurance

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

year following the accident year.

company that is not subject to tax under

4d 80% of the total of all unearned

section 831(a) for its first tax year

Generally, the amount of undiscounted

premiums not reported on lines 2a through

beginning after December 31, 1986,

unpaid losses means the unpaid losses

2c, or 4a through 4c, respectively.

because (1) it is described in section

and unpaid loss adjustment expenses

A reciprocal or interinsurer required

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

shown in the annual statement. However,

under state law to reflect unearned

section 831(b) on its investment income.

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

premiums on its annual statement net of

referring to Regulations section 1.832-4(b)

If the insurance company later

premium acquisition expenses should

relating to the determination of unpaid

becomes subject to tax under section

increase its unearned premiums by the

losses.

831(a), the rules relating to the fresh start

amount of such acquisition expenses prior

under the discounting provisions are

Instructions for Form 1120-PC (2016)

-19-

Instructions For Form 1120-Pc - 2016 Page 19

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