Page:United States Statutes at Large Volume 100 Part 3.djvu/591

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2399

part applies by any insurance company, the amount of the decrease in the deductions of the payee company by reason of the portion of such dividend attributable to prorated amounts shall be reduced (but not below zero) by the amount of the decrease in the deductions (or increase in income) of the payor company attributable to the application of this section or section 805(a)(4)(A) to such amounts. "(ii) PORTION OF DIVIDEND ATTRIBUTABLE TO PRORATED

AMOUNTS.—For purposes of this subparagraph, in determining the portion of any dividend attributable to prorated amounts— "(I) any dividend by the paying corporation shall be treated as paid first out of earnings and profits attributable to prorated amounts (to the extent thereof), and "(II) by determining the portion of earnings and profits so attributable without any reduction for the tax imposed by this chapter." (b) EFFECTIVE DATE.—The amendment made by this section shall apply to taxable years beginning after December 31, 1986. SEC. 1023. DISCOUNTING OF UNPAID LOSSES AND CERTAIN UNPAID EXPENSES. (a) LIMITATION OF DEDUCTION IN THE CASE OF PROPERTY AND CASUALTY INSURANCE COMPANIES.— (1) LOSSES INCURRED.—Clause (ii) of section 832(b)(5)(A) (defin-

ing losses incurred), as amended by section 1022, is amended to read as follows: "(ii) To the result so obtained, add all unpaid losses on life insurance contracts plus all discounted unpaid losses (as defined in section 846) outstanding at the end of the taxable year and deduct unpaid losses on life insurance contracts plus all discounted unpaid losses outstanding at the end of the preceding taxable year." (2) EXPENSES INCURRED.—Section 832(b)(6) (defining expenses

incurred) is amended by inserting after the 1st sentence: "For purposes of this subchapter, the term 'expenses unpaid' shall not include any unpaid loss adjustment expenses shown on the annual statement, but such unpaid loss adjustment expenses shall be included in unpaid losses." (h) LIMITATION OF DEDUCTION IN THE CASE OF LIFE INSURANCE

COMPANIES.—Section 807(c) (relating to reserves and similar items taken into account) is amended by adding at the end thereof the following new sentence: "For purposes of paragraph (2) and section 805(a)(l), the amount of the unpaid losses (other than losses on life insurance contracts) shall be the amount of the discounted unpaid losses as defined in section 846." (c) DISCOUNTED UNPAID LOSSES DEFINED.—Part IV of subchapter L of chapter 1 (relating to provisions of general application) is amended by adding at the end thereof the following new section: "SEC. 846. DISCOUNTED UNPAID LOSSES DEFINED. "(a) DISCOUNTED LOSSES DETERMINED.— "(1) SEPARATELY COMPUTED FOR EACH ACCIDENT YEAR.—The

amount of the discounted unpaid losses as of the end of any taxable year shall be the sum of the discounted unpaid losses (as

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