Our Positions | Small Mutual Inflation Update

Since the Tax Reform Act of 1986, Section 831(b)(2) of the Internal Revenue Code has allowed non-life insurance companies with direct or net written annual premiums not exceeding $1.2 million to elect to be taxed on their net investment income. This alternative tax election level was not written to account for the ensuing decades of inflation. Accounting for inflationary changes since 1986, the threshold for use of the election is now over $2.2 million.

Once made, the alternative tax election applies to all subsequent years and can only be revoked with consent of the Secretary of the Treasury. However, a company must qualify each taxable year to be taxed under Section 831(b); otherwise it is taxed as a regular property/casualty company under Section 831(a).

In order to update the tax code to reflect the growing costs of inflation, NAMIC worked with Congress to pass legislation to increase the election threshold and adjust it for inflation going forward. In 2015, the Small Mutual Inflation Update Act was signed into law. Since then, NAMIC has been working to engage with the IRS during implementation and development of the new tax election process.

NAMIC Position

NAMIC supports allowing small property/casualty insurance companies to elect to be taxed on their investment income at a threshold that is adjusted for inflation.

IRS, Treasury Issue Notice to Stop Use of Captives to Avoid Taxes Under Small Mutual Inflation Update

November 7, 2016 The Internal Revenue Service and Treasury Department issued a new classification for certain transactions Nov. 1 to better ensure that taxpayers could not use captives to avoid taxation through the Small Mutual... Read more

Paulsen Named NAMIC Federal Legislator of the Year

September 28, 2016 VANCOUVER, Canada (Sept. 28, 2016) -- The National Association of Mutual Insurance Companies named Rep. Erik Paulsen, R-Minn., as the association's Federal Legislator of the Year for his work to win passage of... Read more

NAMIC to Hold Webinar on Implementation of Small Mutual Inflationary Update

February 29, 2016 One of NAMIC’s top legislative wins in 2015 was the passage of the Small Mutual Inflation Update, providing an update to Section 831(b) of the Internal Revenue Code. The provision, passed in 1986, allowed property/casualty insurers with direct written a... Read more

In the Nation: Small Mutual Inflation Update Success; NAMIC Cheers Passage of Policyholder Protection Act; FSOC Members Face House Financial Services Committee

January 15, 2016 NAMIC secured a major victory as a legislative priority for small mutual insurers was passed as part of the 2016 omnibus spending bill. NAMIC estimates possibly thousands of Congressional Contact Program meetings had been conducted in order to encourage... Read more

NAMIC Praises Passage of Small Insurer Update in Tax Extenders Legislation

December 18, 2015 The National Association of Mutual Insurance Companies praised passage today of the Small Mutual Inflation Update, a provision to help small insurers grow with their communities and better serve their policyholders. Read more


Jon Bergner
Vice President - Public Policy and Federal Affairs