Section EY 25 — Income Tax Act 2007: Premium smoothing reserving amount: non-participation policies not annuities

EY 25 Premium smoothing reserving amount: non-participation policies not annuities Calculation of reserving amount (1) For an income year (the current year ), a life insurer has a premium smoothing reserving amount for a class of policies, during the policies' PSR periods, calculated using the formula–– opening premium smoothing reserve − closing premium smoothing reserve. Definition of items in formula (2) In the formula,— (a) opening premium smoothing reserve is–– (i) the amount of the life insurer’s closing premium smoothing reserve for the class of policies, for the income year (the prior year ) before the current year; or (ii) the amount that would be the premium smoothing reserve for the class of policies, using the principles in subsection (3) with necessary modifications, calculated at the end of the prior year, if the life insurer has no closing premium smoothing reserve for the prior year: (b) closing premium smoothing reserve is the amount of the life insurer’s premium smoothing reserve calculated under the principles in subsection (3) for the class of policies, calculated at the end of the current year. Premium smoothing reserve calculation: principles (3) A premium smoothing reserve for policies in a class of policies, during their PSR periods, is calculated using the following principles: (a) the premium smoothing reserve must allow the calculation of a reserving amount for an income year, such that the reserving amount plus the life risk component of premiums for the policies for the income year must equal the expected life risk proportion: (b) the life risk component of premiums plus reserving amount recognised for tax purposes during the policies' PSR periods must equal the total life risk component of premiums recognised for financial reporting purposes during the PSR periods. Best estimate assumptions for PSR (4) Closing and opening premium smoothing reserve amounts must be actuarially determined, using best estimate assumptions. Special grouping rule for the purposes of best estimate assumptions (5) For the purposes of determining premium smoothing reserve amounts, life insurance policies may be grouped together if the policies have in common,–– (a) substantially the same contractual terms and conditions, other than their PSR periods; and (b) substantially the same assumptions for pricing their life risk. Meaning of expected life risk proportion (6) In this section, expected life risk proportion means a proportion of the total life risk and life risk renewal expenses of premiums for life insurance policies in the relevant class during their PSR periods, where that proportion fairly reflects the life risk and an amount of life risk renewal expenses expected to be borne in that income year if the policies were still existing at the earlier of–– (a) the end of the income year: (b) immediately before the end of the policies' PSR period. Defined in this Act: amount , , actuarially determined , best estimate assumptions , class of policies , expected life risk proportion , income year , life insurance policy , life insurer , life risk , life risk component , premium , PSR period Section EY 25: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section EY 25(2)(a)(ii): amended (with effect on 1 July 2010), on 7 September 2010, by section 47(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).