608 
Internal Revenue Code of 1986 for calendar year 
2015. For subsequent taxable years, such amend-
ments shall be applied with respect to such reserve 
by using the interest rate applicable under such sec-
tion for calendar year 2015. 
(3) TRANSITION RELIEF.— 
(A) IN GENERAL.—If— 
(i) the reserve determined under sec-
tion 807(d)(2) of the Internal Revenue 
Code of 1986 with respect to any contract 
as of the close of the year preceding the 
first taxable year beginning after Decem-
ber 31, 2014, differs from 
(ii) the reserve which would have been 
determined with respect to such contract 
as of the close of such taxable year under 
such section determined without regard to 
paragraph (2), 
then the difference between the amount of the 
reserve described in clause (i) and the amount 
of the reserve described in clause (ii) shall be 
taken into account under the method provided 
in subparagraph (B). 
(B) METHOD.—The method provided in 
this subparagraph is as follows: 
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(i) if the amount determined under 
subparagraph (A)(i) exceeds the amount 
determined under subparagraph (A)(ii), 1⁄8 
of such excess shall be taken into account, 
for each of the 8 succeeding taxable years, 
as a deduction under section 805(a)(2) of 
such Code, or 
(ii) if the amount determined under 
subparagraph (A)(ii) exceeds the amount 
determined under subparagraph (A)(i), 1⁄8 
of such excess shall be included in gross in-
come, for each of the 8 succeeding taxable 
years, under section 803(a)(2) of such 
Code. 
SEC. 3505. ADJUSTMENT FOR CHANGE IN COMPUTING RE-
SERVES. 
(a) IN GENERAL.—Paragraph (1) of section 807(f) 
is amended to read as follows: 
‘‘(1) TREATMENT AS CHANGE IN METHOD OF 
ACCOUNTING.—If the basis for determining any item 
referred to in subsection (c) as of the close of any 
taxable year differs from the basis for such deter-
mination as of the close of the preceding taxable 
year, then so much of the difference between— 
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‘‘(A) the amount of the item at the close 
of the taxable year, computed on the new basis, 
and 
‘‘(B) the amount of the item at the close 
of the taxable year, computed on the old basis, 
as is attributable to contracts issued before the tax-
able year shall be taken into account under section 
481 as adjustments attributable to a change in 
method of accounting initiated by the taxpayer and 
made with the consent of the Secretary.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 3506. MODIFICATION OF RULES FOR LIFE INSURANCE 
PRORATION 
FOR 
PURPOSES 
OF 
DETER-
MINING THE DIVIDENDS RECEIVED DEDUC-
TION. 
(a) IN GENERAL.—Section 812 is amended to read 
as follows: 
‘‘SEC. 812. DETERMINATION OF COMPANY’S AND POLICY-
HOLDER’S SHARE ON ACCOUNT BY ACCOUNT 
BASIS. 
‘‘(a) DETERMINATION ON ACCOUNT BY ACCOUNT 
BASIS.—Sections 805(a)(4) and 807 shall be applied on 
an account by account basis. 
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‘‘(b) COMPANY’S SHARE.—For purposes of section 
805(a)(4), the term ‘company’s share’ means, with respect 
to any account for any taxable year, the ratio (expressed 
as a percentage) of— 
‘‘(1) the excess of— 
‘‘(A) the mean assets of such account for 
such taxable year, over 
‘‘(B) the mean reserves with respect to 
such account for such taxable year, divided by 
‘‘(2) the mean assets of such account for such 
taxable year. 
‘‘(c) POLICYHOLDER’S SHARE.—For purposes of sec-
tion 807, the term ‘policyholder’s share’ means, with re-
spect to any account for any taxable year, the excess of 
100 percent over the percentage determined under para-
graph (2). 
‘‘(d) MEAN ASSETS
AND MEAN RESERVES DE-
FINED.—For purposes of this subsection— 
‘‘(1) MEAN ASSETS.—The term ‘mean assets’ 
means, with respect to any account for any taxable 
year, 50 percent of the sum of— 
‘‘(A) the fair market value of the assets of 
such account determined as of the beginning of 
such taxable year, and 
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‘‘(B) the fair market value of the assets of 
such account determined as of the close of such 
taxable year. 
‘‘(2) MEAN
RESERVES.—The term ‘mean re-
serves’ means, with respect to any account for any 
taxable year, 50 percent of the sum of— 
‘‘(A) the reserves with respect to such ac-
count as determined under section 807 as of 
the beginning of such taxable year, and 
‘‘(B) the reserves with respect to such ac-
count as determined under section 807 as of 
the close of such taxable year. 
‘‘(3) CERTAIN DIVIDENDS NOT TAKEN INTO AC-
COUNT.—Dividends described in section 246(c) shall 
not be taken into account for purposes of deter-
mining mean assets or mean reserves. 
‘‘(4) FEES AND EXPENSES NOT TAKEN INTO 
ACCOUNT.—Fees and expenses shall not be taken 
into account for purposes of determining mean as-
sets or mean reserves.’’. 
(b) CONFORMING AMENDMENT.—Section 817A(e)(2) 
is amended by striking ‘‘, 807(d)(2)(B), and 812’’ and in-
serting ‘‘and 807(d)(2)(B)’’ 
(c) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part I of subchapter L of chapter 1 is 
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amended by striking the item relating to section 812 and 
inserting the following: 
‘‘Sec. 812. Determination of company’s and policyholder’s share on account by 
account basis.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 3507. REPEAL OF SPECIAL RULE FOR DISTRIBUTIONS 
TO SHAREHOLDERS FROM PRE-1984 POLICY-
HOLDERS SURPLUS ACCOUNT. 
(a) IN GENERAL.—Subpart D of part I of subchapter 
L is amended by striking section 815 (and by striking the 
item relating to such section in the table of sections for 
such subpart). 
(b) CONFORMING
AMENDMENT.—Section 801 is 
amended by striking subsection (c). 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
(d) PHASED INCLUSION OF REMAINING BALANCE OF 
POLICYHOLDERS SURPLUS ACCOUNTS.—In the case of 
any stock life insurance company which has a balance (de-
termined as of the close of such company’s last taxable 
year beginning before January 1, 2015) in an existing pol-
icyholders surplus account (as defined in section 815 of 
the Internal Revenue Code of 1986, as in effect before 
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its repeal), the tax imposed by section 801 of such Code 
for the first 8 taxable years beginning after December 31, 
2014, shall be the amount which would be imposed by 
such section for such year on the sum of— 
(1) life insurance company taxable income for 
such year (within the meaning of such section 801 
but not less than zero), plus 
(2) 1⁄8 of such balance. 
SEC. 3508. MODIFICATION OF PRORATION RULES FOR 
PROPERTY AND CASUALTY INSURANCE COM-
PANIES. 
(a) IN GENERAL.—Section 832(b)(5)(B) is amended 
by striking ‘‘15 percent’’ and inserting ‘‘the percentage 
determined under subparagraph (F))’’. 
(b) DETERMINATION
OF
PERCENTAGE.—Section 
832(b)(5) is amended by adding at the end the following 
new subparagraph: 
‘‘(F) DETERMINATION OF PERCENTAGE.— 
‘‘(i) IN
GENERAL.—For purposes of 
subparagraph (B), the percentage deter-
mined under this subparagraph is the ratio 
(expressed as a percentage) of— 
‘‘(I) the average adjusted bases 
(within the meaning of section 1016) 
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of tax-exempt assets of the company, 
to 
‘‘(II) such average adjusted bases 
of all assets of the company. 
‘‘(ii) TAX-EXEMPT ASSETS.—For pur-
poses of clause (i)(I), the term ‘tax-exempt 
assets’ means assets of the type which give 
rise to income described in subparagraph 
(B).’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 3509. REPEAL OF SPECIAL TREATMENT OF BLUE 
CROSS AND BLUE SHIELD ORGANIZATIONS, 
ETC. 
(a) TRANSITIONAL REPEAL OF SPECIAL RULES.— 
(1) IN GENERAL.—Section 833 is amended by 
striking subsection (b), by redesignating subsection 
(c) as subsection (b), and by amending subsection 
(a) to read as follows: 
‘‘(a) IN GENERAL.—An organization to which this 
section applies shall be taxable under this part in the same 
manner as if it were a stock insurance company.’’. 
(2) TAX STATUS NOT DEPENDENT ON MEDICAL 
LOSS RATIO.—Subsection (b) of section 833, as re-
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designated by subsection (a), is amended by striking 
paragraph (5). 
(3) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply to taxable years begin-
ning after December 31, 2014. 
(b) REPEAL OF STATUTORY TREATMENT AS A STOCK 
INSURANCE COMPANY.— 
(1) IN GENERAL.—Part II of subchapter L of 
chapter is amended by striking section 833 (and by 
striking the item relating to such section in the table 
of sections for such part). 
(2) EFFECTIVE DATE.—The amendments made 
by this subsection shall apply to taxable years begin-
ning after December 31, 2016. 
SEC. 3510. MODIFICATION OF DISCOUNTING RULES FOR 
PROPERTY AND CASUALTY INSURANCE COM-
PANIES. 
(a) MODIFICATION OF RATE OF INTEREST USED TO 
DISCOUNT UNPAID LOSSES.—Paragraph (2) of section 
846(c) is amended to read as follows: 
‘‘(2) DETERMINATION OF ANNUAL RATE.—The 
annual rate determined by the Secretary under this 
paragraph for any calendar year shall be a rate de-
termined on the basis of the corporate bond yield 
curve (as defined in section 430(h)(2)(D)(i)).’’. 
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(b) MODIFICATION OF COMPUTATIONAL RULES FOR 
LOSS PAYMENT PATTERNS.—Section 846(d)(3) is amend-
ed by striking subparagraphs (B) through (G) and insert-
ing the following new subparagraphs: 
‘‘(B) TREATMENT OF CERTAIN LOSSES.— 
Losses which would have been treated as paid 
in the last year of the period applicable under 
subparagraph (A)(i) or (A)(ii) shall be treated 
as paid in the following manner: 
‘‘(i) 3-YEAR
LOSS
PAYMENT
PAT-
TERN.— 
‘‘(I) IN
GENERAL.—The period 
taken into account under subpara-
graph (A)(i) shall be extended to the 
extent required under subclause (II). 
‘‘(II) COMPUTATION OF EXTEN-
SION.—The amount of losses which 
would have been treated as paid in the 
3d year after the accident year shall 
be treated as paid in such 3d year 
and each subsequent year in an 
amount equal to the amount of the 
losses treated as paid in the 2d year 
after the accident year (or, if lesser, 
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the portion of the unpaid losses not 
theretofore taken into account). 
‘‘(ii) 10-YEAR
LOSS
PAYMENT
PAT-
TERN.— 
‘‘(I) IN
GENERAL.—The period 
taken into account under subpara-
graph (A)(ii) shall be extended to the 
extent required under subclause (II). 
‘‘(II) COMPUTATION OF EXTEN-
SION.—The amount of losses which 
would have been treated as paid in the 
10th year after the accident year shall 
be treated as paid in such 10th year 
and each subsequent year in an 
amount equal to the amount of the 
losses treated as paid in the 9th year 
after the accident year (or, if lesser, 
the portion of the unpaid losses not 
theretofore taken into account). 
‘‘(C) SPECIAL RULE FOR INTERNATIONAL 
AND REINSURANCE LINES OF BUSINESS.—Ex-
cept as otherwise provided by regulations, any 
determination made under subsection (a) with 
respect to unpaid losses relating to the inter-
national or reinsurance lines of business shall 
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be made using, in lieu of the loss payment pat-
tern applicable to the respective lines of busi-
ness, a pattern determined by the Secretary 
under paragraphs (1) and (2) based on the 
combined losses for all lines of business de-
scribed in subparagraph (A)(ii). 
‘‘(D) SPECIAL RULE FOR 2D OR 9TH YEAR 
IF NEGATIVE OR ZERO.— 
‘‘(i) 3-YEAR
LOSS
PAYMENT
PAT-
TERN.—If the amount of the losses treated 
as paid in the 2d year after the accident 
year is zero or a negative amount, sub-
paragraph (B)(i)(II) shall be applied by 
substituting the average of the losses treat-
ed as paid in the 1st and 2d years after 
the accident year for the losses treated as 
paid in the 2d year after the accident year. 
‘‘(ii) 10-YEAR
LOSS
PAYMENT
PAT-
TERN.—If the amount of the losses treated 
as paid in the 9th year after the accident 
year is zero or a negative amount, sub-
paragraph (B)(ii)(II) shall be applied by 
substituting the average of the losses treat-
ed as paid in the 7th, 8th, and 9th years 
after the accident year for the losses treat-
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ed as paid in the 9th year after the acci-
dent year.’’. 
(c) REPEAL
OF HISTORICAL PAYMENT PATTERN 
ELECTION.—Section 846 is amended by striking sub-
section (e) and by redesignating subsections (f) and (g) 
as subsections (e) and (f), respectively. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
(e) TRANSITIONAL RULE.—For the first taxable year 
beginning after December 31, 2014— 
(1) the unpaid losses and the expenses unpaid 
(as defined in paragraphs (5)(B) and (6) of section 
832(b) of the Internal Revenue Code of 1986) at the 
end of the preceding taxable year, and 
(2) the unpaid losses as defined in sections 
807(c)(2) and 805(a)(1) of such Code at the end of 
the preceding taxable year, 
shall be determined as if the amendments made by this 
section had applied to such unpaid losses and expenses 
unpaid in the preceding taxable year and by using the in-
terest rate and loss payment patterns applicable to acci-
dent years ending with calendar year 2015, and any ad-
justment shall be taken into account ratably in such first 
taxable year and the 7 succeeding taxable years. For sub-
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