26 CFR § 1.810-2 - Rules for certain reserves.
(a) Adjustment for decrease or increase in certain reserve items—(1) Adjustment for decrease. Section 810(a) provides that if the sum of the items described in section 810(c) and paragraph (b) of this section at the beginning of the taxable year exceeds the sum of such items at the end of the taxable year (reduced by the amount of investment yield not included in gain or loss from operations for the taxable year by reason of section 809(a)(1)), the amount of such excess shall be taken into account as a net decrease referred to in section 809(c)(2) and paragraph (a)(2) of § 1.809–4 in determining gain or loss from operations.
(2) Adjustment for increase. Section 810(b) provides that if the sum of the items described in section 810(c) and paragraph (b) of this section at the end of the taxable year (reduced by the amount of investment yield not included in gain or loss from operations for the taxable year by reason of section 809(a)(1)) exceeds the sum of such items at the beginning of the taxable year, the amount of such excess shall be taken into account as a net increase referred to in section 809(d)(2) and paragraph (a)(2) of § 1.809–5 in determining gain or loss from operations.
(b) Items taken into account. The items described in section 810(c) and referred to in section 810 (a) and (b) and paragraph (a) of this section are:
(1) The life insurance reserves (as defined in section 801(b) and § 1.801–4);
(2) The unearned premiums and unpaid losses included in total reserves under section 801(c)(2) and § 1.801–5;
(3) The amounts (discounted at the rates of interest assumed by the company) necessary to satisfy the obligations under insurance or annuity contracts (including contracts supplementary thereto), but only if such obligations do not involve (at the time with respect to which the computation is made under this subparagraph) life, health, or accident contingencies;
(4) Dividend accumulations, and other amounts, held at interest in connection with insurance or annuity contracts (including contracts supplementary thereto); and
(5) Premiums received in advance, and liabilities for premium deposit funds.
(6) Special contingency reserves under contracts of group term life insurance or group health and accident insurance which are established and maintained for the provision of insurance on retired lives, for premium stabilization, or for a combination thereof.
(c) Special rules. For purposes of section 810 (a) and (b) and paragraph (a) of this section, in determining whether there is a net increase or decrease in the sum of the items described in section 810(c) and paragraph (b) of this section for the taxable year, the following rules shall apply:
(1) Computation of net increase or decrease in reserves. The sum of the items described in section 810(c) and paragraph (b) of this section at the beginning of the taxable year shall be the aggregate of the sums of each of such items at the beginning of the taxable year. The sum of the items described in section 810(c) and paragraph (b) of this section at the end of the taxable year shall be the aggregate of the sums of each of such items at the end of the taxable year. However, in order to determine whether there is a net increase or decrease in such items for the taxable year, the aggregate of the sums of the items at the end of the taxable year must first be reduced by the amount of investment yield not included in gain or loss from operations for the taxable year by reason of section 809(a)(1).
(2) Effect of change in basis in computing reserves. Any increase or decrease in the sum of the items described in section 810(c) and paragraph (b) of this section for the taxable year which is attributable to a change in the basis used in computing such items during the taxable year shall not be taken into account under section 810 (a) or (b) and paragraph (a) of this section but shall be taken into account in the manner prescribed in section 810(d) and paragraph (a) of § 1.810–3.
(3) Effect of section 818(c) election. If a company which computes its life insurance reserves on a preliminary term basis elects to revalue such reserves on a net level premium basis under section 818(c), the sum of such reserves at the beginning and end of all taxable years (including the first taxable year) for which the election applies shall be the sum of such reserves computed on such net level premium basis.
(4) Cross references. For taxable years beginning before January 1, 1970, see section 810(e) (as in effect for such years) for special rules for determining the net increase or decrease in the sum of the items described in section 810(c) and paragraph (b) of this section in the case of certain voluntary employees' beneficiary associations. For similar special rules in the case of life insurance companies issuing variable annuity contracts, see section 801(g)(4) and the regulations thereunder.
(d) Illustration of principles. The provisions of section 810 (a) and (b) and this section may be illustrated by the following examples:
| Sum of items described in section 810(c) (1) through (6) at beginning of taxable year | $940 |
|---|---|
| Sum of items described in section 810(c) (1) through (6) at end of taxable year | 1,060 |
| Required interest (as defined in section 809(a)(2)) | 70 |
| Investment yield (as defined in section 804(c)) | 100 |
| Amount of investment yield not included in gain or loss from operations for the taxable year by reason of section 809(a)(1) | 70 |
| Sum of items described in section 810(c) (1) through (6) at beginning of taxable year | $1,970 |
|---|---|
| Sum of items described in section 810(c) (1) through (6) at the end of taxable year | 2,040 |
| Required interest (as defined in section 809(a)(2)) | 60 |
| Investment yield (as defined in section 804(c)) | 40 |
| Amount of investment yield not included in gain or loss from operations by reason of section 809(a)(1) | 40 |