Modified Coinsurance and Its Use by Some Life Insurance Companies To Reduce Taxes

GAO was asked to analyze the characteristics of modified coinsurance transactions and the extent of their use by life insurance companies. Modified coinsurance is an arrangement in which insurance companies share risk. By entering into these arrangements, some insurance companies, primarily large mutual companies, are able to convert their investment income, on which they pay tax, into underwriting income, on which there is little if any tax.