Insurers discuss consequences of US corporate tax reform
US insurers are generally welcoming the corporate tax reform but are cautious against unintended consequences, according to analysts from research firm CreditSights.
The Hartford chief financial officer Beth Bombara said at a Goldman Sachs conference that the company is welcoming the tax reform but prefers the House’s proposed version given nuances associated with the alternative minimum tax.
In new legislation, currently being negotiated the US government is planning to cut the corporate tax rate to 20 percent from the current 35 percent.
The management of supplemental insurance provider Aflac believes that the company’s effective tax would be lowered to around 26 percent from around 34 percent if the corporate tax rate is reduced to 20 percent, according to CreditSights.
Based on the senate tax plan, Lincoln National’s cash tax bill may go up over a 10-year period, but the company’s GAAP operating income would benefit from lower corporate taxes. Management noted that a decline in the corporate tax rate could have a negative impact on risk-based capital (RBC) ratios given that it could reduce individual operating company’s deferred tax assets (DTA) positions.
This potential decline in company RBC ratios could lead to a recalibration of what is considered a “good” RBC ratio if tax plan is passed. Lincoln National management believes that the reaction from rating agencies could be a critical issue in determining if a permanent decline is acceptable, as opposed to the ultimate absolute value of the RBC ratio.
Health insurer Humana expects to benefit significantly from corporate tax cuts given they are at the very high end of taxpayers in the country. Humana and other health insurers benefited from a temporary 1-year health insurer fee moratorium in 2017, but this will not reoccur in 2018, the analysts noted.
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