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How conservative should insurance companies be in accounting for deferred tax assets? A new rule adopted by the National Association of Insurance Commissioners (NAIC) will lessen the degree of “overconservatism,” the organization said.

The NAIC last week announced it has adopted changes to Statement of Statutory Accounting Principles No. 10 – Income Taxes, which officials said should “better depict the true economic condition of the insurer” in its statutory financial statements.

Deferred tax assets represent a difference between an insurer’s statutory and tax accounting values that will reverse in the future, and when reversed, will create lower taxes for the insurer in the future. One of the most common examples of a deferred tax asset results from the higher statutory policyholder reserves and the related lower reserve for tax purposes.

“Insurance regulators have long understood the need for conservatism in insurers’ financial statements as evidenced by our current conservative reserving requirements, disallowance of assets for acquisition costs and non-admission of many other assets,” said Roger Sevigny, NAIC president and New Hampshire Insurance Commissioner, in a press release. “This change recognizes that fact, but also recognizes that overconservatism can actually be detrimental to consumers.”

The change is effective for insurers’ year-end 2009 statutory financial statements and the impact of the change will be disclosed in the notes to financial statements in the insurers’ statutory filings