An Analysis of the Impact of the Tax Reform Act on the Property/Casualty Industry

The property/casualty industry has operated under essentially the same federal income tax law since 1921. In the latter part of 1986 a new tax bill was signed into law that substantially revises the way property/ casualty companies are taxed. Analysis of the impact of the new tax code will be vital to insurance companies. The insurance industry will now have to learn to live with substantial tax costs and will have to adjust operations accordingly. In addition to increasing the overall tax burden, the tax law will have the effect of smoothing out taxable income decreasing the uses of carrybacks and carryforwards. The new tax rules will have substantial impact on investment management. This paper will provide an analysis and explanation of the text of the new law, examples of how the tax burden will be calculated, and an analysis Of investment strategies in this new environment.