| This paper documents that from 1985 through 1993, capital gain realizations by mutual life insurance companies (mutuals) were significantly higher than by stock life insurance companies (stocks). A tax law, Internal Revenue Code Section 809, enacted in 1984 coincides with the higher capital gains by mutuals. Under Section 809, as earnings (which include capital gains) by the mutual segment of the industry increase, allowable tax deductions can also increase. This paper analyzes capital gain realizations by large mutuals and large stocks before and after the enactment of Section 809. The analysis indicates that the mutual segment as a whole has not been strategically realizing capital gains to maximize its tax deductions after 1984. However, the empirical results indicate that the largest mutuals have increased capital gain realizations as a result of the reduced marginal tax rate created by Section 809. In addition, the results provide evidence of other systematic differences between large mutuals and large stocks contributing to the higher capital gain levels by mutuals. |
