S&P Global Ratings has advised U.S. insurers to quickly adapt to the new tax regime to optimise its benefits, but doesn’t expect any immediate impact on ratings from the new taxation legislation.
S&P Global Ratings highlighted the potential impact of this legislation on rated U.S. insurers in a recent report, credit analyst Deep Banerjee explained; “although we don’t expect immediate rating changes, the manner in which U.S. insurers adjust to the tax code revisions will determine the longer-term impact on individual company ratings.”
The newly introduced 21% corporate tax rate is a positive for most corporates, including most insurers, and will result in higher after-tax income in the longer term.
There would likely be additional competitive benefits particularly for U.S. insurers looking to compete in international jurisdictions.
However, in the short-term, the new tax rate could cause firms’ capitalization to drop due to the write-down of deferred tax assets (DTA) in line with the new tax regime.
“We expect this to have a meaningful near-term impact especially for U.S. life insurers and multiline insurers that currently have sizeable DTAs on their balance sheets,” said S&P.
Overall, the rating agency predicts that for U.S. insurers, 2018 will be an active year of adaptation to the new tax regime.
S&P advised; “insurers that are negatively affected in the near term may need to update their strategies for funding any capital deficiencies.
“Insurers that are positively affected may want to plan to be more opportunistic with the lower tax rate. We will continue to engage with our rated insurers to better understand their near-term and longer-term strategies around the new tax law.”
