The expectation that tax reforms may be coming that affect the offshore reinsurance industry does not necessarily mean that a wave of reinsurers will be moving to set up in the U.S., according to Credit Suisse analysts.
Discussing insights learned at a recent conference and citing RenaissanceRe President and CEO Kevin O’Donnell, the analysts explain that expected tax reforms coming from the new U.S. administration may not be enough alone to encourage reinsurers to move from bases such as Bermuda.
Despite the U.S. market being so vital to companies like RenaissanceRe and the other Bermudian reinsurance firms, who source the majority piece of their risks from that market, a desire to move away due to tax reforms is not currently being seen.
While there are some advantages to being located in the U.S. for access to catastrophe risk business, the analysts explain that a major drawback could be that once business has been moved onshore, moving it back off-shore again in the future (if required due to other changes in tax or economic environment) could be a non-starter.
Additionally, RenaissanceRe believes that tax reforms will likely benefit both shareholders and cedents, but that shareholders may not find it acceptable for all of the tax benefits to be passed onto cedents even if it could drive faster growth at the reinsurer.
As a result any benefit is expected to be more balanced and likely driven through returns, however the analysts from Credit Suisse note that this may be difficult as the reaction from onshore reinsurers may be competitive.