Tax Reserve Formula Section Conversion in the Disability Module (June, 2009)
In the Disability module, the Tax reserve formula section which allows the tax reserve to be calculated as a combination of the Stat reserve, the Second reserve and the unearned premium, has been removed. In its place, the Reserve processing option switch now has the options shown in this article.
This conversion has opened up the ability to add new functionality to the Disability module.
Historically in AXIS, the Tax reserve in the Disability module was a proportion of Stat reserve or Second reserve, and did not have its own independent assumptions. As the need arose for more reserve methods, as well as independent tax reserves, options were added to allow for the tax reserve to be based on a combination of the Stat reserve, the Second reserve and the unearned premium or using its own assumptions.
This unique structure in the Disability module relative to our other liability modules caused complexities, as well as the need for a different processing order of the reserves in the DI module. Processing and development of the DI module was forced to be unique, and thus did not share in the development and implementation of new features and options as rapidly in comparison to the other liability modules.
As an initial step to enhancing the Disability module tax reserve section, the formula section has been removed. In its place, the Reserve processing option switch now has the following options:
0 - Reserves are specified explicitly with their own methods and assumptions
1 - Reserves are X% of stat ALR and Y% stat DLR
2 - Reserves are X% of scnd ALR and Y% scnd DLR
Two new scalar fields, X and Y, have been added. A tax reserve that was previously defined using a more complicated formula that could not be converted using the new switch options should now be specified using its own method and assumptions. This approach gives greater flexibility than was available using the formula, however, will cause an additional set of reserve calculations to be performed.
The tax method has already been expanded to allow Part 1 income tax based not only on the tax reserve, as it was previously, but also on either the stat reserve or the second reserve. Reserve component and reconciliation reports have also been expanded, and are now available when Deferred tax liability is included in the reserve calculations.
Additional future enhancements are also planned to add active life mortality assumptions to AXIS in the Disability module, and to include IIT and a Mortality component for required surplus, which could not have been done in the older environment.