Page:United States Statutes at Large Volume 100 Part 3.djvu/596

 100 STAT. 2404

PUBLIC LAW 99-514—OCT. 22, 1986

"(ii) the limitation of subsection (a)(3) shall apply in lieu of the limitation of the last sentence of section 807(d)(1), and "(B) in all other cases, by using an assumption (in lieu of a loss payment pattern) that unpaid losses are paid during the year following the accident year. "(g) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including— "(1) regulations providing proper treatment of allocated reinsurance, and "(2) regulations providing proper treatment of salvage and reinsurance recoverable attributable to unpaid losses." (d) CLERICAL AMENDMENT.—The table of sections for such part IV is amended by adding at the end thereof the following new item: "Sec. 846. Discounted unpaid losses defined." (e) EFFECTIVE DATE.—

(1) IN GENERAL.—The amendments made by this section shall apply to taxable years beginning after December 31, 1986. (2) TRANSITIONAL RULE.—For the first taxable year beginning after December 31, 1986— (A) the unpaid losses and the expenses unpaid (as defined in paragraphs (5)(B) and (6) of section 832(b) of the Internal Revenue Code of 1986) at the end of the preceding taxable year, and (B) the unpaid losses as defined in sections 807(c)(2) and 805(a)(1) of such Code at the end of the preceding taxable year, shall be determined as if the amendments made by this section had applied to such unpaid losses and expenses unpaid in the preceding taxable year and by using the interest rate and loss payment patterns applicable to accident years ending with calendar year 1987. For subsequent taxable years, such amendments shall be applied with respect to such unpaid losses and expenses unpaid by using the interest rate and loss payment patterns applicable to accident years ending with calendar year 1987. (3) FRESH START.—

(A) IN GENERAL.—Except as otherwise provided in this paragraph, any difference between— (i) the amount determined to be the unpaid losses and expenses unpaid for the year preceding the 1st taxable year of an insurance company beginning after December 31, 1986, determined without regard to paragraph (2), and (ii) such amount determined with regard to paragraph (2), shall not be taken into account for purposes of the Internal Revenue Code of 1986. (B) RESERVE STRENGTHENING IN YEARS AFTER

1985.—

Subparagraph (A) shall not apply to any reserve strengthening in a taxable year beginning in 1986, and such strengthening shall be treated as occurring in the taxpayer's 1st taxable year beginning after December 31, 1986. (C) EFFECT ON EARNINGS AND PROFITS.—The earnings and

profits of any insurance company for its 1st taxable year

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