New Tax Law Mostly Positive for U.S. Property Casualty Insurers
January 18, 2018
Conning—New Tax Law Mostly Positive for U.S. Property-Casualty Insurers
--Forecast incorporating impacts released
(Hartford, CT) January 18, 2018—The 2017 U.S. Tax Cut and Jobs Act brings with it both opportunities and challenges for the U.S. property-casualty insurance industry, according to a new analysis by Conning.
“The 2017 Tax Cut and Jobs Act was signed into law in December, and insurers are still processing the Act’s major elements and planning responses,” said Alan Dobbins, a Director, Insurance Research at Conning. “Clearly the headline reduction of the corporate tax rate will benefit U.S. insurers overall. Based on our proprietary P&C model, the tax rate reduction to 21% will increase the industry’s net income by approximately 15% for 2018 and 2019. The elimination of the corporate alternative minimum tax is also a positive for the industry, but the reduction in the corporate tax rate will reduce the relative attractiveness of tax exempt municipal holdings that represent almost a third of the industry’s current bond holdings. The law also reduces the value of deferred tax assets and liabilities with the reduction in corporate tax rate, with a corresponding effect on surplus.”
The Conning “Property-Casualty Forecast & Analysis” fourth quarter edition reviews the key components of the tax law changes and likely impact on the industry and its financial performance.
“The Base Erosion Anti-Abuse Tax will have an impact on multinational insurers,” said Steve Webersen, Head of Insurance Research at Conning. “For re/insurers, this minimum tax is meant to address business ceded from U.S. subsidiaries to foreign-domiciled subsidiaries. We expect that this change will significantly reduce the estimated $90 billion in premiums ceded by U.S. subsidiaries to affiliates, and initiate a re-allocation of capital to U.S. subsidiaries. In response to these and other tax law changes insurers will need to plan responses to the tax act to optimize performance with possible structural adjustments and reassess their strategic investment allocations.”
“Property-Casualty Forecast & Analysis” is available for purchase from Conning by calling (888) 707-1177 or by visiting www.conningresearch.com.
ABOUT CONNING®
“The 2017 Tax Cut and Jobs Act was signed into law in December, and insurers are still processing the Act’s major elements and planning responses,” said Alan Dobbins, a Director, Insurance Research at Conning. “Clearly the headline reduction of the corporate tax rate will benefit U.S. insurers overall. Based on our proprietary P&C model, the tax rate reduction to 21% will increase the industry’s net income by approximately 15% for 2018 and 2019. The elimination of the corporate alternative minimum tax is also a positive for the industry, but the reduction in the corporate tax rate will reduce the relative attractiveness of tax exempt municipal holdings that represent almost a third of the industry’s current bond holdings. The law also reduces the value of deferred tax assets and liabilities with the reduction in corporate tax rate, with a corresponding effect on surplus.”
The Conning “Property-Casualty Forecast & Analysis” fourth quarter edition reviews the key components of the tax law changes and likely impact on the industry and its financial performance.
“The Base Erosion Anti-Abuse Tax will have an impact on multinational insurers,” said Steve Webersen, Head of Insurance Research at Conning. “For re/insurers, this minimum tax is meant to address business ceded from U.S. subsidiaries to foreign-domiciled subsidiaries. We expect that this change will significantly reduce the estimated $90 billion in premiums ceded by U.S. subsidiaries to affiliates, and initiate a re-allocation of capital to U.S. subsidiaries. In response to these and other tax law changes insurers will need to plan responses to the tax act to optimize performance with possible structural adjustments and reassess their strategic investment allocations.”
“Property-Casualty Forecast & Analysis” is available for purchase from Conning by calling (888) 707-1177 or by visiting www.conningresearch.com.
ABOUT CONNING®
Conning (www.conning.com) is a leading global investment management firm with approximately $121 billion in global assets under management as of December 31, 2017.* With a long history of serving the insurance industry, Conning supports institutional investors, including pension plans, with investment solutions and asset management offerings, award-winning risk modeling software, and industry research. Founded in 1912, Conning has offices in Boston, Cologne, Hartford, Hong Kong, London, New York, and Tokyo.
*As of December 31, 2017, represents the combined global assets under management for the affiliated firms under Conning Holdings Limited, and Cathay Securities Investment Trust Co., Ltd. ("SITE"). SITE reports internally into Conning Asia Pacific Limited, but is a separate legal entity under Cathay Financial Holding Co., Ltd. which is the ultimate controlling parent of all Conning entities.
Contact:
Michael Warner
Conning, Inc.
860-299-2408
Mike.Warner@Conning.com