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Some companies have been called economic traitors for seeking to lower their tax bills by moving overseas. But life insurers are accomplishing the same goal without leaving the country, saving as much as $100 billion in federal taxes, much of it in the last several years.

The insurers are taking advantage of fierce competition for their business among states, which have passed special laws that allow the companies to pull cash away from reserves they are required to keep to pay claims. The insurers use the money to pay for bonuses, shareholder dividends, acquisitions and other projects, and because of complicated accounting maneuvers, the money escapes federal taxation.

The Transamerica Life Insurance Company used a state law in Iowa last year to reap $1.8 billion from its reserves while also avoiding an estimated $640 million in federal taxes, according to company documents. The deal was unusually large but otherwise followed the general industry trend.

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South Carolina, Arizona and Delaware are other states competing for these deals, hot on the heels of Vermont, which pioneered the idea many years ago. Hawaii is positioning itself as the venue of choice for fast-growing Pacific Rim insurers.

But other states have refused to go along, and in New York, the state’s financial services superintendent is appealing to Washington to block the practice.

“There is no sound policy reason why the American taxpayer should continue to subsidize certain life insurance companies in this fashion,” said Benjamin M. Lawsky, the New York State financial services superintendent, in a letter to Treasury Secretary Jacob J. Lew, a copy of which was obtained by The New York Times. Mr. Lawsky, who has declared a moratorium on the transactions in New York State, recommended that the Internal Revenue Service examine the deals. A Treasury Department representative said it had received the letter and was reviewing it.

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Transamerica’s chief financial officer, Michiel van Katwijk, said that its arrangement in Iowa had been reviewed by outside actuaries and auditors, as well as the I.R.S., and that it complied with the law.

“The I.R.S. reviews it, and it’s not contentious,” he said.

The pre-eminent goal of insurance regulation, which is handled state by state, is making sure all insurers operate safely, keeping enough money on hand to pay claims promptly. But some states allow them to reduce sharply the amounts they must hold, well below the level set by law, through the complex deals.

The deals are structured to let companies report their reserves as unchanged. This is where the tax savings comes in. By federal law, reductions in reserves are treated as taxable income. But because on paper it appears that the reserves have remained the same, the insurers do not pay the federal tax. The maneuvers are sometimes known as “shadow insurance.”

Mr. Lawsky has been calling the transactions “financial alchemy” because they seem to make money appear out of nowhere. But his moratorium has been unsuccessful, because so many other states want the deals. The National Association of Insurance Commissioners has hired a consultant to work on the issue, but agreement among the states remains elusive.

Iowa, for the moment, appears to have “state-of-the-art statutes and regulations.” That is what the Symetra Life Insurance Company said in explaining last January why it was moving its legal domicile from Bellevue, Wash., to Des Moines.

The Iowa insurance commissioner, Nick Gerhart, said his staff performed a quarterly analysis of all such transactions to make sure they were sound and that he could step in if anything went wrong. He added that Iowa had reviewed the laws of other states “to pick out what we thought were the best.” Iowa now requires both the parent and the subsidiary to be seated in Iowa for regulatory purposes, allowing his staff to “see through” the transactions “from start to finish.”

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Even better for insurers, they already receive a federal tax incentive when it comes to reserves. Because they are an ordinary business expense, reserves are tax-deductible — the higher the reserves, in general, the bigger the federal deduction. And from a savvy life insurer’s point of view, that is the beauty of these transactions: It can both avoid a tax and free up capital at the same time. So far, state regulators have no authority to enforce the federal tax laws. The I.R.S. does have that authority but cannot often see the tax maneuver because such deals are extremely complex and the details are often protected by state confidentiality laws.

The transactions are modeled after reinsurance, a business in which an insurer pays another company to take over some of its obligations to pay claims. Reinsurance is widely used and is considered beneficial because it allows insurers to spread their risks evenly and remain stable as they grow. The obligations drop off the original insurer’s books because the reinsurer — normally a well-capitalized, independent company — has picked them up.

In the shadow version, life insurers create wholly owned subsidiaries, sometimes called captives, which they use to “reinsure” their obligations to policyholders. The parent insurers drop the obligations off their balance sheets, even though the “reinsurers” in these deals are not independent and the obligations remain within the same corporate family. Nor do the subsidiaries have enough money to pay all the obligations, the way a standard reinsurer is expected to.

The details of each deal can differ, but they generally go like this: A parent insurer first transfers a batch of policy obligations to a special-purpose subsidiary it creates, sending along the full amount required by state law to pay the claims. Typically, it sends high-quality assets like bonds, as required by law. Shaky assets, like i.o.u.s from related companies, do not qualify. Sending the full amount to the subsidiary allows the insurer to keep its federal tax deduction, because the reserves are still in the same corporate family.

Next, the subsidiary conjures another asset — this time one not normally allowed under state insurance law. It may be an i.o.u., a guarantee from the parent company or some other paper with little or no commercial value. State regulators are supposed to examine such “related-party transactions” and throw out any bogus assets. But states can also grant “permitted practices,” such as accepting inadmissible assets as valid for a special-purpose subsidiary. Typically, the asset is said to be worth the amount that will bridge the gap between the low reserves the parent is willing to hold and the higher reserves required by law. This pads the subsidiary’s total assets, making it seem to have far more money than it needs. The “excess” can then be harvested by the parent.

Reducing reserves “adds a tremendous amount of financial risk to the companies involved,” according to Ralph S.J. Koijen and Motohiro Yogo, economists with the London Business School and the Minneapolis Fed who have studied shadow insurance. In essence, the companies are betting that the state requirements are needlessly high, forcing them to invest too conservatively and lowering their return on equity — a ratio closely watched by Wall Street. Their bets may be right or wrong; no one will know until far in the future because years or even decades can pass from the time a life insurance policy is written until a death results in a claim. States have traditionally erred on the side of caution because such long-term promises can invite cheating.

Truthful financial reporting “is of paramount importance to the protection of policyholders,” the insurance commissioners’ association says in its accounting bible. The association develops uniform reserve requirements; its model law, adopted by all 50 states, makes it a crime to cover up an insurer’s insolvency.

But disputes have raged for years over the reserves for certain types of life insurance. The boom in reinsurance subsidiaries was, in fact, kicked off by a new requirement from the association in 2000, which some insurers found exorbitant — in some cases, the statutory reserves were four times as high as necessary, Mr. van Katwijk said. A couple of states passed laws offering relief, other states jumped in, and the race for insurance deals was on.

In the past, any temptation an insurance executive might have felt to skimp on reserves was damped by the federal tax incentive. Congress specifically told the I.R.S. to measure reserves the way the commissioners’ association does, so the doubts that insurers may have felt about meeting tough state rules were quieted by a big savings at tax time. But now that some states are allowing shadow insurance, insurers can have it both ways, keeping their full deduction but reducing their reserves at the same time.

After his moratorium failed to get traction, Mr. Lawsky took a critical look at reserve requirements and decided that they really were unnecessarily high for some types of life insurance. Last March, he made an offer: New York State would roll back the reserve requirements by 35 percent for those types, if, in exchange, the insurers would stop “reinsuring” the obligations through subsidiaries in other states.

Given the complaints about “redundant reserves,” he thought insurers would flock to his office to sign up for his offer. But he did not get a single taker.

That, he said, showed him that once insurers started using shadow insurance, they stopped wanting lower reserve requirements. They had to look as if they were setting up oversize reserves to get the commensurate federal tax break. That done, they could recover the “excess” unseen, in the privacy of their special-purpose subsidiaries.

“This loophole,” he told Mr. Lew, “defies any form of logic or common sense.”