Any changes to the tax rules on offshore reinsurance purchases from the new U.S. administration under Donald Trump could potentially influence how and where insurers such as Travelers would purchase reinsurance protection, CEO Alan Schntizer said yesterday.
The new administration has brought discussion of offshore reinsurance purchasing back to the fore, as a more protectionist business outlook from the Trump administration could mean higher taxes for capital flowing offshore.
Speaking during the Travelers quarterly earnings call yesterday, CEO Alan Schnitzer said that any change to taxation of offshore reinsurance purchases could result in changes to the insurers reinsurance strategy.
Asked about whether border tax changes could influence the Travelers reinsurance strategy, CEO Schnitzer explained; “It’s really hard to answer that question without knowing what the border adjustments are going to look like.”
“If there were tax adjustments that change the cost of reinsurance, obviously we could look for alternative providers of reinsurance,” Schnitzer continued.
Access to the global reinsurance market likely makes reinsurance purchases significantly more efficient than they would be if restricted to U.S. reinsurers. Many of the major reinsurers of the world are European and Bermudian, with fewer large U.S. players available.
Of course the major reinsurers of the world would likely react to any tax changes from the Trump administration that threatened their trade in reinsurance capital, by establishing U.S. subsidiaries which enabled them to pay tax locally on services offered.
The Travelers CEO said that whatever happens on offshore reinsurance tax rules his company is only a modest buyer of reinsurance anyway, so changes would not be so impactful for the insurer; “The broader point for us is reinsurance just isn’t that big a deal for us.”
But for some property catastrophe specialists, or the state-backed insurers and residual market insurers, access to global reinsurance markets is key, as it enables better diversification of risks, access to more efficient capital and ultimately lowers the cost and effectiveness of risk transfer.
Open borders and trade are really important to a market such as reinsurance, improving the efficiency of the product and dispersing the risk more effectively.
