No surprise that tax reform was a major topic at the Insurance Information Institute’s 2018 P/C Joint Industry Forum a couple of weeks ago. The discussion was mostly positive. Barclays Capital Managing Director and senior equity analyst at Barclays Capital Jay Gelb said the cuts and reforms will be a bottom-line benefit for U.S. companies.
“We’ve actually estimated for Berkshire Hathaway alone, just on their deferred tax liability going down, it’s a $34 billion benefit — about 12 percent of their book value. Berkshire’s earning power going forward should benefit by around 12 percent as well,” he said.
Gelb and the researchers at Barclays say American companies domiciled here will see a large jump in earnings going forward. “Then the question becomes, ‘How much of that will actually go to the bottom line in terms of will rates be adjusted to take that into account or will competitive factors ramp up?'” he said.
He doesn’t think — however — that offshore insurers and reinsurers will see that much benefit and believes some will even see a negative impact. It will be slight but negative nonetheless.
Brian Duperreault of AIG said, “Generally speaking, so far so good. It got put together so quickly. There are still some things that need to be clarified.”
One thing is clear in California Insurance Commissioner Dave Jones’ mind is that insurers should have to pass their tax rate reduction “windfalls” onto insurance consumers.
"The recent revision to the Federal Tax Schedule for 2018 reduced the corporate tax rate from 35 percent to 21 percent. That means that nationally insurers will now be able to retain even more of policyholder premiums as profit. However, in California the prior approval process that applies to property and casualty insurance rates limits insurer profits. I have directed my staff to commence a regulatory review of these insurers' rates given the major tax windfall under the new federal tax rules. I have also directed staff to consider and identify possible actions in other lines of business where insurers will benefit from the tax cut to see if we can enable their policyholders to also benefit from the lower corporate taxes paid by their insurers,” Jones said.
Mark Sektnan is the vice president of state government relations for the Property Casualty Insurers Association of America (PCI) He called Jones’ statement shortsighted.
“The home, auto, and business insurance marketplace is extremely competitive, and this is the best guarantee of service, product innovation and prices. The impact of tax reform will vary greatly from company to company. In California, companies’ immediate concern moving into 2018 is helping families and businesses rebuild after the tragic wildfire season.”
He pointed out that premium reductions will be one of many options insurers will consider. Some companies might use the excess money to expand operations, add new jobs or to give employees more benefits and incentives.
Sektnan’s bottom-line? “This announcement is another example of regulators overstepping their boundaries,” he said.
Source links: Carrier Management, Insurance Journal