Uh, yes.
If you purchase an insurance policy and your limits are $500,000.00 and get involved in a fender bender car accident the insurance company has 500K " exposure" and is exempted from taxation on that exposure in their investment portfolio. Same with limits on all insurance policies as exposure is the risk. Now how many unsettled claims are there and how much $$$ does that add up to each year in unsettled claims?
That is how it works. Why else does an insurance company wait until the court house steps at time of trial 3 years after major accidents? I do this for a living.
Insurance companies and major league baseball are also exempt from ALL anti trust legislation.
You do what for a living? Clean court house steps?
It is called the reserve.
On the insurance companies books the reserve is always calculated as a LIABILITY and is counted against net premiums.
Now how is a liability taxed? If you are writing MORE insurance with your profits then that liability on the books IS NOT taxed.
Theoretically, the reserve is the difference between the present value of the total insurance and the present value of the future premiums on the insurance face value, the exposure or risk.
"Clean court house steps?"
I could do that probably as well or better than I have cleaned your clock on this subject.
Fine.
And when the claim is settled and the reserve is not needed?
I would bet it is re-calculated into profit.
This is analogous to mortgage companies, which have to book all the anticipated return on a loan but keep a reserve in case it's paid off early.