SECTION 25. INSURANCE

COMPANIES (§§ 816, 832, 833)

.01 Safe harbor method of accounting for premium acquisition expenses .

(1) Description of change . Rev. Proc. 2002–46, 2002–2 C.B. 105, sets forth a safe harbor method of accounting for pre

mium acquisition expenses of certain nonlife insurance companies. Under this method, an insurance company is permitted to treat as premium acquisition expenses incurred for the taxable year an amount equal to the sum of (a) the amount of premium acquisition expenses paid during the taxable year; (b) the difference between the unpaid premium acquisition expenses shown on the company’s annual statement for the taxable year and the unpaid premium acquisition expenses shown on the company annual statement for the preceding taxable year; and (c) the difference between the amount of the insurance company’s pro forma premium acquisition expenses at the end of the taxable year and the company’s pro forma premium acquisition expenses at the end of the preceding taxable year. The amount taken into account as a net increase in the pro forma premium acquisition expenses, however, cannot exceed the insurance company’s unearned premium reserve offset amount for that year. A special rule applies to premium acquisition expenses with respect to certain contracts with installment premiums. See Rev. Proc. 2002– 46. (2) Applicability . The automatic change in this section 25.01 applies to any insurance company that is subject to tax under § 831(a) and determines its premiums earned for insurance contracts during the taxable year under § 832(b)(4) in accordance with the provisions of § 1.832–4. The automatic change does not apply to an existing Blue Cross or Blue Shield organization or any other organization to which § 833 applies.

(3) Certain eligibility rules inapplica- ble . The eligibility rules in sections 5.01(1)(d) and (f) of Rev. Proc. 2015–13, 2015–5 I.R.B. 419, do not apply to this change.

(4) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 25.01 is “67.” (5) Contact information . For further information regarding a change under this section, contact David Remus at (202) 317-6995 (not a toll-free number). .02 Certain changes in method of ac- counting for organizations to which § 833 applies.

(1) Description of change . This change applies to an existing Blue Cross or Blue Shield organization within the meaning of § 833(c)(2), or an organization described in § 833(c)(3), that is required to change its method of accounting for unearned premiums by reason of failing to meet the Medical Loss Ratio (MLR) requirements of § 833(c)(5), or by reason of meeting the MLR requirements of § 833(c)(5) after failing to meet those requirements in a prior year. See Notice 2011–4, 2011–2 I.R.B. 282.

(2) Certain eligibility rules inapplica- ble . The eligibility rules in sections 5.01(1)(d) and (f) of Rev. Proc. 2015–13, 2015–5 I.R.B. 419, do not apply to this change.

(3) Accelerated § 481(a) adjustment period in certain situations . In addition to the circumstances set forth in section 7.03(4) of Rev. Proc. 2015–13, the § 481 adjustment period provided in section 7.03 of Rev. Proc. 2015–13 will be accelerated in the event a taxpayer with a remaining balance of a § 481(a) adjustment that arose by reason of a change in method of accounting described in this section 25.02 is required to effect another change in method of accounting described in this section 25.02. Thus, for example, a taxpayer that fails to satisfy the requirements of § 833(c)(5) and as a result has a positive § 481(a) adjustment, is required to accelerate the remaining balance, if any, of that adjustment in a subsequent taxable year in which the taxpayer meets the requirements of § 833(c)(5).

(4) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 25.02 is “155.” (5) Contact information . For further information regarding this section, contact Rebecca L. Baxter at (202) 317-6995 (not a toll-free number).

.03 Change in qualification as life/non- life insurance company under § 816(a) .

(1) Description of change . This change applies to a taxpayer that changes its qualification under § 816(a) to move from a life insurance company taxable under part I of subchapter L to a non-life insurance company taxable under part II of subchapter L, or vice versa . Whether an insurance company is taxed under § 801 as a life

February 2, 2015 552 Bulletin No. 2015–5

insurance company is determined using the statutory requirements of § 816(a). This section requires that a company’s life insurance reserves (as defined in § 816(b)), plus unearned premiums and unpaid losses on noncancellable life, accident, and health insurance contracts not included in life insurance reserves, be compared to its total reserves (as defined in § 816(c)). The comparison mandated by § 816(a) is referred to as the qualification fraction. An insurance company is a life insurance company if the sum of the life insurance reserves and unearned premiums and unpaid losses (whether or not ascertained) on noncancellable life, accident, or health policies not included in life insurance reserves comprise more than 50% of total reserves. (2) Certain eligibility rules inapplica- ble . The eligibility rules in sections 5.01(1)(d) and (f) of Rev. Proc. 2015–13, 2015–5 I.R.B. 419, do not apply to this change.

(3) No audit protection or ruling on qualificiation as a life insurance com- pany . The taxpayer does not receive either: (a) any audit protection under section 8.01 of Rev. Proc. 2015–13 or (b) ruling reliance under section 10 of Rev. Proc. 2015–13 in connection with the consent granted under section 9 of Rev. Proc. 2015–13 for a change under this section 25.03 regarding whether the taxpayer qualifies as a life insurance company. The director will ascertain whether the taxpayer qualifies as a life insurance company.

(4) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 25.03 is “219.” (5) Contact information . For further information regarding a change under this section, contact Rebecca L. Baxter at (202) 317-6995 (not a toll-free number).