96-122
Response
August 23, 1996
Request
XXXXX
Dear XXXXX
In advance of a planned company restructuring we are
writing to confirm the appropriate treatment of certain of the transferred
assets, specifically guaranteed association (“GA”) assessments.
Because state law in this area is generally silent,
we would appreciate a written response from your office to support our
position.
Background and Rationale for the Transfer
The XXXXX is a non-US insurer which issues participating
policies in the United States through its US Branch. As part of our company’s restructuring we are planning to
transfer this business to our wholly owned US subsidiary, the XXXXX. The effective date of the transfer will be
December 31, 1996 (subject to regulatory approval).
US legislation places foreign-domiciled insurance
companies at a complete disadvantage.
As a result, our primary business objective for transferring the
business to the XXXXX is to place the company on a level footing with US
domiciled companies from both a tax and regulatory perspective. The transfer is being undertaken to
strengthen the company’s ability to continue to deliver good, long-term value
and superior service to our field associates and policyholders.
Method of Transfer
This transfer is being done through a bulk
reinsurance agreement (without novation).
Essentially the transaction is a tax free continuation of business in
our subsidiary. All of the assets and
liabilities of the XXXXX business are being transferred to this US company,
including the guarantee association assessments, as set out in the capital and
surplus agreement which forms part of the bulk reinsurance agreement.
Guarantee Association Assessments
When guarantee association assessments are paid,
they are set up as an asset in the company’s records because of the value they
have to the company, as a credit against future premium tax. State statute generally recognizes this as
they allow the unamortized portion of the GA assessment to be shown as an
asset. Further, a common law principle
provides that assets are transferable, unless specifically excluded as
specified in the contract. On this
basis, there should not be any limitation to the transferability of the
guarantee association assessments to our US subsidiary.
Therefor, once the transfer of the assets is
complete, the guarantee association assessments will be available as an offset
against future premium tax for the US subsidiary. Also, since the company’s liabilities will also be transferred,
future guarantee association assessments will be paid from the US subsidiary.
In essence we are continuing our existing US Branch
life insurance business through a wholly owned US company, and the logical
outcome is that the guarantee association assessments follow the business that
is transferred to the US subsidiary.
Premium Tax Returns
As a result of this transfer, 1996 will be the last
year a premium tax return will be filed for our US Branch and the corresponding
GA credit will be taken. In 1997 the
foreign parent will be giving up its certificate of authority, and will not
file for a premium tax return.
Therefore, no further guarantee association credits will be taken.
However, the same business for the 1997 year will be
reported through the US subsidiary, and accordingly the GA assessments will be
taken as a credit on the US company’s premium tax return in 1997.
Summary
We would appreciate a written response from your
office confirming our interpretation that on our planned transfer of XXXXX
business to our wholly owned US subsidiary the guarantees association
assessments would also be transferred to our wholly owned US subsidiary and be
available as a credit on future premium tax returns.
If you have any questions please contact me directly
at XXXXX.
Sincerely,
XXXXX
XXXXX
Advisory
Opinion - Insurance guarantee association credits
Dear
XXXXX
We have received your request for guidance
as to the disposition of the guarantee association credits of parent company
whose operation is transferred to a wholly owned subsidiary. Although Utah law does not specifically
address this question, we offer the following guidance.
Section 31A-28-113 of the Utah Code
addresses credits for assessments paid.
Under that statute, an insurer is entitled to offset its Utah premium
tax liability to the extent of 20% of the amount of the assessment for each of
the five calendar years following the year in which the assessment is
paid. If offsets exceed premium tax
liability, the offsets may be carried forward to offset liability in future
years. However, if the insurer ceases
doing business, all uncredited assessments may be credited against its premium
tax liability for the year it ceases doing business.
Section 31A-28-113 does not
contemplate the transfer of credits from one taxpayer to another. It does, however, allow a company that
ceases to do business in Utah to avoid the 20% credit cap placed on on-going
insurance operations. Therefore, we
suggest that the parent company take all of its available credits in the year
it ceases to do business.
If we can be of further assistance,
please let us know.
For
the Commission,
Alice
Shearer,
Commissioner