Another property and casualty question:
CFAI text states in one part of Reading 15, that poperty and casualty companies like to make use of tax-exempt bonds during various periods in the underwriting cycle in order to maximize after-tax returns. (This makes complete sense)
In a following section, it states that a 1986 change to tax rules made tax-exempt bond income subject to tax for property and casualty companies.
So do property and casualty companies still use tax-exempt bonds a lot today? I mean the tax exempt bonds aren’t fully taxable, but the CFAI book made it seem like the semi taxable nature of tax-exempt bonds makes it more difficult to model the benefits of tax-exempt over taxable. Not sure if I should be mentioning this in the tax constraint if I get a property and casualty question on the test.
Thanks.