Fitch On US Tax Reforms & Bermuda Re/insurers

December 21, 2017 | 3 Comments

“U.S tax reforms set to take effect in 2018 are credit negative for the Bermuda [re]insurance market,” according to Fitch Ratings, who added they ”expect Bermuda will largely maintain its strong position in the global reinsurance market.”

“The cut in the U.S. corporate tax rate to 21% from 35% and a new tax on premiums ceded by U.S. insurers to foreign reinsurers will benefit U.S. reinsurers at the expense of Bermudian and other international reinsurers serving the U.S,” the ratings agency said.

“We do not anticipate immediate rating implications as we expect Bermuda will largely maintain its strong position in the global reinsurance market, continuing to benefit from its underwriting expertise, strong and efficient regulatory regime and full Solvency II equivalence.

“Moreover, partly in anticipation of U.S. tax reform, Bermudian reinsurers have been adapting their businesses and increasing their geographic diversification. Nonetheless, the U.S. continues to be their most important market. Significant declines in business or earnings could prompt negative rating actions.

“The corporate tax cut and the Base Erosion and Anti-Abuse Tax [BEAT] will reduce the tax advantage of reinsuring U.S. risks to Bermuda, with more reinsurance business and capital incentivized to stay in the U.S. Bermuda does not have a corporate income tax but most Bermuda reinsurers pay income and other taxes given their international operations.

“Notably, they pay a U.S. excise tax on premium payments from the U.S. to offshore affiliates that is currently 4% on direct premiums and 1% on reinsurance premiums. The added BEAT will be at a significantly higher rate: 5% in 2018, then 10% until 2025 and 12.5% thereafter.

“Bermudian reinsurers’ U.S. business is largely written in U.S. subsidiaries and then transferred to Bermuda. From a group perspective, the tax changes may affect the location of the business rather than the amount, with the business and associated capital more likely to be retained in the U.S. subsidiaries.

“We expect most Bermudian reinsurers with U.S. subsidiaries will take up the option to pay U.S. corporate taxes on the subsidiaries’ profits instead of BEAT.

“Any reduction in supply of reinsurance capacity from Bermuda following the U.S. tax changes is likely to drive global reinsurance premium rates up. Rates in some lines of reinsurance are already on the rise following this year’s high catastrophe claims.”

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  1. Whiskey tango foxtrot says:

    Now…..wait a cotton picking minute…
    You do understand who benefits by reinsuring here?
    America ,for the most part is the only country in the world that puts tar shingles (flammable petroleum products ),on their roofs the have a fireworks holiday.
    Or have same structure building codes where higher is needed due to wind increase or tidal surge.

  2. Whiskey tango foxtrot says:

    And…basically we have your back faster than anyone else saving interest rates for anticipatory short term borrowing…please consider these things carfully.

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