Meyer's paper
Lawn,Yin ( (no email) )
Tue, 12 Jan 1999 09:47:21 -0600
Hi,
I read the paper on Meyer and found it very interesting. However, the
paper uses tax assumption prior to 1986 tax reform. I was wondering
does anyone have any idea how to correct it with the right treatment of
tax. I think you have to start with an assumption whether or not you
are in the regular tax world or the Alternative minimum tax world.
You'll need another interest rate(the Fed midterm rate) and industry
payout pattern to discount your liability for federal income tax
purpuses. In addition, you'll need to make an adjustment on the unearn
premium reserves and investment income on tax-exempt bonds.
Questions: Under the tax reform of 1986, do you think Meyer's separate
treatment of tax on investment income and underwriting profit is still
valid? Meyer treated them separately as if they were independent of
each other. However, under tax law of 1986, I don't think you can
looked at them separately(or can you?). It's almost like you need to
rewrite Meyer's equation to connect the two taxes.
I have some ideas but can't put them togethers yet. Any suggestions or
ideas will be appreciated.
---Yin