Crediting rate.... Insurance companies..

CFA Level III
#1

I thought insurance companies were taxable entities… i think i’m mixing up the type of tax…

Below is a explanation…

The assistant is correct regarding crediting rate (the actuarially assumed rate of return necessary to meet policyholder obligations) that portion of return is typically not taxed for property for life or properly and casualty companies

Can someone explain?

Thanks!

#2

Suppose insurance companies need 5% rate of return (as per acturial assumptions) to meet policy holder reserves, return on assets until 5% is not taxed. However, insurance companies being for profit organizations may have higher return objectives. Anything beyond 5% is taxed.

#3

Thanks!

#4

Similar to expense tax deduction.