Page:United States Statutes at Large Volume 100 Part 3.djvu/589

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2397

"(iii) APPLICABLE STATUTORY PREMIUM RECOGNITION PATTERN.—The term 'applicable statutory premium recognition pattern' means the statutory premium recognition pattern— "(I) which is in effect for the calendar year in which the premiums are received, and "(II) which is based on the statutory premium recognition pattern which applies to premiums received by the taxpayer in such calendar year. For purposes of the preceding sentence, premiums received during any calendar year shall be treated as received in the middle of such year." (c) EFFECTIVE DATE.—

(1) IN GENERAL.—The amendment made by this section shall apply to taxable years beginning after December 31, 1986. (2) SPECIAL TRANSITIONAL RULE FOR TITLE INSURANCE COMPA-

NIES.—For the 1st taxable year beginning after December 31, 1986, in the case of premiums attributable to title insurance— (A) IN GENERAL.—The unearned premiums at the end of the preceding taxable year as defined in paragraph (4) of section 832(b) shall be determined as if the amendments made by this section had applied to such unearned premiums in the preceding taxable year and by using the interest rate and premium recognition pattern applicable to years ending in calendar year 1987. (B) FRESH START.—Except as provided in subparagraph (C), any difference between— (i) the amount determined to be unearned premiums for the year preceding the first taxable year of a title insurance company beginning after December 31, 1986, determined without regard to subparagraph (A), and (ii) such amount determined with regard to subparagraph (A), shall not be taken into account for purposes of the Internal Revenue Code of 1986. (C) EFFECT ON EARNINGS AND PROFITS.—The earnings and

profits of any insurance company for its 1st taxable year beginning after December 31, 1986, shall be increased by the amount of the difference determined under subparagraph (A) with respect to such company. SEC. 1022. TREATMENT OF CERTAIN DIVIDENDS AND TAX-EXEMPT INTEREST.

(a) IN GENERAL.—Paragraph (5) of section 8320t)) (defining losses incurred) is amended to read as follows: "(5) LOSSES INCURRED.—

"(A) IN GENERAL.—The term 'losses incurred' means losses incurred during the taxable year on insurance contracts, computed as follows: "(i) "To losses paid during the taxable year, add salvage and reinsurance recoverable outstanding at the end of the preceding taxable year and deduct salvage and reinsurance recoverable outstanding at the end of the taxable year. "(ii) To the result so obtained, add all unpaid losses outstanding at the end of the taxable year and deduct

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