Tax Reform: Best Briefing on Insurer Benefits and Partial Offsets

Scissors cutting through the word taxes

December 22, 2017 |

Scissors cutting through the word taxes

According to A.M. Best, the insurance industry will see overall benefits from the reduced corporate tax rate as a result of the Tax Cuts and Jobs Act once it is signed into law; however, partially offsetting the benefits are certain revenue enhancements that will impact companies.

The Best's Briefing, "First Look—Tax Reform 2017," highlights the provisions in the new US tax reform legislation, currently awaiting President Donald Trump's signature, that A.M. Best believes will initially have the greatest impact on insurers. The new law's repeal of the individual mandate for health insurance promulgated under the Affordable Care Act will be discussed in greater detail in the future.

Reserve changes will impact life and property and casualty companies; however, changes applicable to businesses in effect as of Dec. 31, 2017, will be spread over the next 8 years.

The report provides a quick reference table delineating the tax bill's effects on the insurance industry for the following.

  • Corporate tax cut
  • Net operating loss
  • Loss reserving patterns
  • Foreign taxes
  • Proration of reserve deduction
  • Risk-based capital
  • Best's capital adequacy ratio

In addition to the quick reference table, the report also offers a longer summary and more specifics on the impacts of each issue listed above.

The briefing notes that it still remains to be seen how companies' capital management, product pricing, and risk management will be impacted as management of these companies and investors reevaluate risk and return measures such as effective cost of debt, cost of capital, or return on equity.

To access the full copy of this briefing, please visit A.M. Best's Member Center to register or use an existing login credentials.

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Look for further information on tax reform and captive insurance from when the captive daily wire resumes after the first of the year in 2018.

December 22, 2017