Foreign Tax

Analyst Foresees Benefits Of U.S Tax Reform For Insurance Industry

As the United States’ tax reform moves continue to generate debates across the global fiscal policy space after last weekend’s vote in favour of the Bill by the Senate, an analyst at Keefe, Bruyette & Woods Inc., Meyer Shields, has predicted that the reform holds great potential for reinsurers and specialty insurers in the country.

Others listed as potential beneficiaries of the tax reform, are insurance brokers, standard commercial insurers, personal insurers and the Bermuda market sector.

Shields, who noted that the Senate’s weekend vote on the tax reform package makes its passage “more likely,” said that domestic reinsurers and specialty insurers “face the most competition from insurers utilizing affiliated subsidiaries in lower-tax jurisdictions,”

A report by Business Insurance online quoted Shields as saying that something tax reform could help alleviate, though the Senate and House of Representatives approaches differ.

According to him, for reinsurance brokers, “a smaller gap between U.S. and Bermudian tax rates could incrementally depress demand for reinsurance exploiting the current tax arbitrage opportunity.”

While the analyst foresees brokers generally seeing a reduced interest expense deduction, he predicted that domestic standard insurers “should initially incur lower taxes,” due to “less Bermudian participation in domestic standard commercial lines,” in favour of more profitable specialty lines.

Shields predicted further that “we expect rate competition, and, to a much lesser extent, regulatory pressure, to eventually absorb most of the bottom-line upside from lower domestic tax rates.”

For the Bermudian insurers and reinsurers, the expert said he expected “significantly lower cessions to foreign affiliates, although incremental taxes, at 20% on higher domestically retained income should be offset by lower excise taxes of about 1% on all premiums ceded internationally and taxes currently incurred on net-profitable ceding commissions.”

It would be recalled that the U.S. Senate had last Friday approved a tax overhaul aimed at slashing taxes for businesses and the rich while offering Americans a mixed bag of changes.

The fiscal measure, which appeared to be the largest change to U.S. tax laws since the 1980s, promises an addition of about $1.4 trillion over 10 years to the $20 trillion national debt to finance changes that the President Donald Trump’s Republican government say would further boost an already growing economy.

The President had tweeted early morning Friday that “we are one step closer to delivering massive tax cuts for working families across America.”

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