In Revenue Ruling 2009-26 (the “Ruling”), issued on September 1, 2010, the IRS provided guidance on whether a reinsurance contract between a corporation (a “Reinsurer”) and an insurance company is treated as “reinsuring risks” underwritten by insurance companies for purposes of determining whether the Reinsurer is an insurance company under Section 831(c) of the Internal Revenue Code of 1986, as amended (the “Code”). Applying a look-through rule for determining risk distribution, the IRS determined that the Reinsurer was an “insurance company” in each of two distinct fact patterns, one of which involved a Reinsurer reinsuring a single block of insurance contracts issued to different policy holders and insured by a single insurance company unrelated to the Reinsurer, and the other of which involved a Reinsurer reinsuring multiple blocks of contracts, with at least one of the blocks containing contracts issued to only one policy holder unrelated to the Reinsurer.
The Ruling confirms, as tax practitioners have long believed to be the case, that in determining the risk distribution of a Reinsurer with respect to a particular insured, all similar classes of risks insured by the insurer should be considered, irrespective of whether such risks were insured by the same insurer which had provided the original policy to the particular insured.
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