Minnesota Lawyers Mutual Insurance Company and Subsidiaries - Page 21

            I.   Applicable Law                                                                        
                  Petitioner, as a mutual property and casualty insurance                              
            company, must compute its taxable income under section 832.  See                           
            sec. 831.  Taxable income equals gross income less allowable                               
            deductions.  See sec. 832(a).  Gross income includes amounts                               
            earned from investment and underwriting income, “computed on the                           
            basis of the underwriting and investment exhibit of the annual                             
            statement approved by the National Association of Insurance                                
            Commissioners”.  Sec. 832(b)(1)(A).  Underwriting income means                             
            “the premiums earned on insurance contracts during the taxable                             
            year less losses incurred and expenses incurred.”  Sec.                                    
            832(b)(3).  Insurance companies are also allowed various                                   
            deductions under section 832(c), including a deduction for                                 
            “losses incurred”, as defined in section 832(b)(5).  Sec.                                  
                  “Losses incurred” generally means (with qualifications                               
            inapplicable here) losses paid (net of salvage and reinsurance                             
            recovered) on insurance contracts during the year plus any                                 
            increment from the preceding year in discounted “unpaid losses”,                           
            less any increment from the preceding year in estimated                                    

                  18 Although such a deduction would appear potentially                                
            duplicative of losses incurred taken into account in determining                           
            underwriting income under sec. 832(b)(3), the statute                                      
            specifically prohibits the same item from being deducted more                              
            than once.  See sec. 832(d).                                                               

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Last modified: May 25, 2011