Analysts at Keefe, Bruyette & Woods (KBW) said that following the United State Senate’s vote on the tax reform bill in the early hours of Saturday in which the reform passed the legislation.
The tax bill has implications for the U.S. and global insurance and reinsurance sector, with some concerns over how it could impact certain reinsurance players, particularly those domiciled offshore.
The tax bill, while still having differences between a House and Senate version that do need to be reconciled, looks to make it less attractive to make cessions to foreign affiliate companies, such as reinsurers, in lower tax jurisdictions.
The passing of a tax bill which makes these cessions less attractive could be positive for some U.S. re/insurers, but negative for those in jurisdictions such as Bermuda.
As a result, KBW said that if the tax bill does become law with the foreign affiliate tax reforms intact, it could be most positive for U.S. domestic reinsurers and specialty insurers, followed by brokers, commercial carriers, personal insurers and lastly for Bermudian re/insurers.
KBW said that the fact the tax bill passed through the Senate does make it seem more likely that it will come into effect, with few changes to the areas of the bill that the analysts consider most relevant to P&C re/insurers.
If there are no changes to the bill that passed the Senate, KBW said that it would expect to see “significantly lower cessions to foreign affiliates.”
Lobby groups highlight that such tax changes would be harmful for the U.S. insurance industry and its consumers, reducing their options to manage risks, raising the costs of risk transfer or reinsurance and likely meaning insurance policies would become more expensive for consumers.
By restricting the flow of risk around the international re/insurance market it could also concentrate certain exposures in the United States, which could hurt companies when major losses and disasters strike.
There is still time for the bill to be changed and a committee will now meet to try to reconcile the differences between House and Senate versions of the bill, plus amendments that were tabled.
