According to analysts at Jefferies, Bermuda’s newly enacted tax credits regime could materially reduce the corporate tax burden for island-based re/insurers, with potential near-term accounting impacts and longer-term implications for earnings forecasts.
For those unaware, the Bermuda Tax Credits Act, enacted on December 11, 2025, has introduced tax credits linked to on-island payroll, local spending, and community donations.
While the benefits will phase in over three years, Jefferies believes they could meaningfully reduce Bermudan corporation tax, particularly for insurance groups with substantial local operations.
Because the legislation was passed late in the year, any benefit attributable to 2025 may need to be accrued entirely in the fourth quarter, potentially creating an outsized impact on Q4 results, the firm explained.
Elsewhere, Jefferies also outlined the potential, though unlikely, knock-on effect on how insurers assess their deferred tax assets (DTAs).
Before Bermuda introduced corporate income tax, insurers that made losses did not create DTAs, because there was no tax against which those losses could be offset.
That changed when a 15% corporate income tax rate was introduced in December 2023, effective from the 2025 fiscal year.
Under the transitional rules, insurers were allowed to recognise DTAs not only on a go-forward basis, but also for net taxable losses incurred in the five fiscal years before implementation.
According to Jefferies, given the heavy natural catastrophe losses in recent years, many insurers built up substantial DTAs.
Now, however, the new tax credits will materially reduce recurring tax expense, which in turn lengthens the time it would take for insurers to utilise those DTAs.
“As DTAs are recognised at par, without any discounting to reflect the time it would take to utilise them, this should not spark an impairment. However, the accounting standards do state (under IAS 12.35) that the value of a DTA should be limited to a level for which there is convincing evidence that sufficient profit will be available to offset it,” Jefferies said.
While there is no fixed time horizon for how far into the future companies can look when assessing recoverability, Jefferies suggested that a prudent insurer might cap its DTAs at the amount it expects to use within management’s formal forecasting period.
The firm concluded that it sees a widespread impairment as unlikely, though it flagged the issue as one that management teams and investors may need to monitor as the new credit regime reshapes Bermuda’s effective tax landscape.
