President Barack Obama’s budget proposal for 2012, released Feb. 14, includes two recycled and “failed” life insurance proposals, according to an industry analyst.
Jeffrey Schuman
One of the budget proposals would change the calculation of life insurance companies’ dividends received deductions (DRD) and the other changes how taxes on corporate owned life insurance (COLI) is handled for those sold in the future, according to Jeffrey Schuman, an analyst at Keefe, Bruyette & Woods.
Collectively, the two changes would generate about $3.4 billion over five years, a small part of the $1.6 trillion federal budget deficit. Obama’s budget plan must be approved by Congress, and Republican legislators have threatened to seek deeper cuts to the president’s budget.
DRD change
Obama wants to make what Schuman called a “technical adjustment” to the DRD calculation, estimated to generate about $2.4 billion in tax revenue over the next five years. Schuman said in his analysis that the change would primarily affect companies with material separate account business.
While Schuman and others at KBW cannot estimate the effect on each life insurer, the change would appear to have a small impact on insurers.
In 2009, six companies – Ameriprise, Hartford Mutual, Lincoln National, MetLife, Principal Financial and Prudential Financial — had total DRD benefits of $832 million, according to the report.
COLI change
The COLI change would generate about $1 billion in tax revenue over five years, according to the Obama Administration. But the change faces an uphill battle.
Democratic administrations several times since 1998 have failed in their attempts to prohibit, on a pro-rated basis, the deductibility of interest expenses for companies that offer COLI programs, according to Schuman.
“We don’t see the potential impact as hugely problematic as it would merely serve to depress future sales for one type of life insurance,” Schuman wrote.
Two ‘failed’ life insurance proposals included in Obama’s budget plan via IFAwebnews.com .
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