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.

NAMIC News on the Small Mutual Inflation Update


Erin Collins
Senior Vice President - State and Policy Affairs