SECTION 7. CHANGE IN METHOD

OF ACCOUNTING

.01 In general . A change to the safe harbor method provided in section 5.02 of this revenue procedure is a change in method of accounting to which the provisions of §§ 446 and 481 and the regulations thereunder apply. Thus, in order to change to the safe harbor method, an insurance company must complete Form 3115, Application for Change In Method of Accounting, and otherwise comply with the procedures in this section 7.

.02 Automatic change . A taxpayer that wants to change its method of accounting for premium acquisition expenses to the safe harbor method provided by section 5.02 of this revenue procedure must follow the automatic change in method of accounting provisions of Rev. Proc. 2002–9, 2002–3 I.R.B. 327 (or its successor), as modified by Rev. Proc. 2002–19, 2002–13 I.R.B. 696, with the following modifications:

(1) The scope limitations in section 4.02 of Rev. Proc. 2002–9 do not apply. (2) To assist the Service in processing changes in method of accounting under this section of the revenue procedure, and to ensure proper handling, section 6.02(4)(a) of Rev. Proc. 2002–9 is modified to require that a Form 3115 filed under this revenue procedure include the statement: “Automatic Change Filed Under Rev. Proc. 2002–46.” This statement should be legibly printed or typed on the appropriate line of any Form 3115 filed under this revenue procedure.

.03 Automatic change for the first tax- able year beginning after December 31, 1999 . A taxpayer that wants to change to the safe harbor method for its first taxable year beginning after December 31, 1999, is not subject to the filing requirements in section 6.02(3)(a) or the effective date provision in section 13.01 of Rev. Proc.

.04 Unearned premium reserve offset amount . (i) Except as otherwise provided in paragraph 3.04(ii), an insurance company determines the unearned premium offset amount for a taxable year by multiplying—

(A) The amount, if any, by which the company’s pro forma unearned premium reserve at the end of the taxable year exceeds its pro forma unearned premium reserve at the end of the preceding taxable year, by

(B) .20. (ii) In the case of a financial guaranty insurer to which the special rules in § 832(b)(7)(B) apply, the unearned premium reserve offset amount is determined by multiplying the amount, if any, by which the company’s pro forma unearned premium reserve for financial guaranty contracts at the end of the taxable year exceeds its pro forma unearned premium reserve for financial guaranty contracts at the end of the preceding taxable year by .10.