INTRODUCTION In this work, we analyzes the tax management policy of a property-liability insurance company. Myers' Theorem (1984) implies that the present value of the expected tax liability, the government's tax option, is determined solely by the effective tax rate and the risk-free interest rate. Therefore, controlling the effective tax rate of the firm is crucial in its financial management. A firm that can craft a lower effective tax rate than its competitors does enjoy a competitive advantage, but in competitive equilibrium this lowering of tax rates is achieved by all firms and results in lower premium rates. A prerequisite to effective management of the firm's tax liability is the ability to measure that liability and to forecast movements in that measurement. Uncertainty clearly plays a role ill accurate forecasting-uncertainty that stems from both probabilistic and nonprobabilistic sources. Cummins and Derrig (1997) model both types of uncertainty in the pricing and underwriting accept/reject context using fuzzy sets methods. We also examine the uncertainty of the firm's tax rate by using fuzzy sets methodology for modeling that uncertainty. Our analysis, using a simplified model of an insurer's asset-liability portfolio, implies that uncertainly is indeed quite great, and may be underestimated under other methodologies. We begin with the tax consequences of the insurance company's investment portfolio. MYERS' THEOREM AND ITS IMPLICATIONS We assume that an insurance corporation holds an asset portfolio yielding a one-period investment return, and is subject to a tax liability on realized income. We also assume a simple capital asset pricing model (CAPM) market. Let T be the effective tax rate on the investment income, for now taken to be known with certainty. Myers' Theorem (1984) says that the risk-adjusted present value of the tax liability on investment income from a risky investment portfolio held by a corporation is [Mathematical Expression Omitted] (1) where [Mathematical Expression Omitted] is tile rate of return on the risky portfolio, and [r.sub.F] is the risk-free rate of return. In other words, the present value of the tax liability on the risky return is calculated as if that return were the risk-free rate. The present value of the tax liability is independent of the investment strategy and is determined solely by the effective tax rate and the risk-free rate. Derrig (1994) notes that the tax liability itself is not risk free. In fact, the beta of the tax can be determined to be [[Beta].sub.TAX] = [[Beta].sub.A] 1 + [r.sub.F]/[r.sub.F], (2) where [[Beta].sub.A] is the beta of the risky asset utilized by the company's investment strategy. Note that, unless that asset is risk free or the risk-free rate equals zero, [[Beta].sub.TAX] [greater than][[Beta].sub.A]. The present value of the after-tax final investment holdings of the corporation equals [Mathematical Expression Omitted] (3) and the after-tax beta of the risky portfolio is [[Beta].sub.AFTER-TAX] = [[Beta].sub.A] (1-T)(1 + [r.sub.F])/1 + (1 - T)[r.sub.F].(4) The implication of these results is that the effective tax rate and the risk-free rate fully determine the present value of the expected investment tax liability, and when combined with the market riskiness of the investment portfolio, the aftertax, effective, riskiness of that portfolio. Following Myers, we consider a one-period insurance company market value balance sheet at the time a policy is issued: [TABULAR DATA OMITTED] Any firm by virtue of its existence assumes a short position in a security producing cash flows of taxes payable by the firm. The government collecting the tax is long that security. One might naturally expect a firm to develop strategies to manage this short position. In the case of tax on investment income, we see certain important implications for its management given by Myers' Theorem. …