Moody’s Investors Service says the Trump tax cuts will benefit insurance companies domiciled in the U.S. This is mainly good for those that have been paying high effective tax rates. As a result, the cuts will boost profitability.
Even better, the tax reforms will make U.S. insurers more competitive with their global cousins. That’s good news for insurers but not for buyers. Moody’s VP Siddhartha Ghosh said they should not expect big cuts in price.
“We do not expect a material shift in the pricing of P&C products as a direct consequence of tax reform because risk-adjusted returns by product are based on multiple factors, including capital requirements, competition, loss cost trends, expenses, the cost of reinsurance, and taxes,” he said.
Much about the cuts are positive but not all.
One negative is the base erosion and anti-abuse (BEAT) tax is credit negative for non-U.S. insurers and for reinsurers whose U.S. subsidiaries transfer significant premiums to non-U.S. affiliates. However, the impact of the BEAT tax can be overcome somewhat by retaining more business in the U.S. and by having higher U.S. capital levels. They can also elect to have an affiliated non-U.S. domiciled carrier elect to become a U.S. taxpayer.
Non-U.S. reinsurers are likely to see higher corporate taxes on a higher portion of their U.S. business. That will cut the profitability of Bermuda-based insurers and reinsurers.
Source link: Insurance Journal