2017 Fall Q11
Examiners Report Solution for part c states a common mistake would be to recognize they might be over-reserving and then having negative development, but they wanted you to then tie it to the company underpaying taxes for full credit
I'm not making that tax connection, could you please elaborate?
Comments
What they mean is, in the calendar years where the company over-reserved, it stated a lower income. (Premium - paid loss - change in reserve - expenses = income.) So, it paid a lower income tax. And that is a regulatory concern.
This is not a satisfactory answer. Companies don't lower their income in pursuit of lower taxes. However, it came to pass. . .