Bermuda will manage under minimum tax, says Fitch

Moves to a 15% minimum tax will reduce but not eliminate Bermuda’s benefits as a domicile for reinsurance, according to Fitch Ratings.

In  analysis posted on Tuesday, the agency said that “Bermuda’s advantageous tax status for the re/insurance industry will be reduced at the margin” as a result of the agreement under the OECD’s Inclusive Framework on Base Erosion and Profit Shifting (BEPS).

“The overall benefits of maintaining a Bermuda market domicile and operations will likely endure, but the net profitability gap between Bermuda and non-Bermuda incorporated companies is expected to narrow over time,” it expands.

According to the agency, the change is unlikely to prompt any immediate rating revisions of Bermuda re/insurers, “although the long-term implications remain to be seen”, it added.

“Bermuda continues to benefit from an established position in the global re/insurance marketplace, with demonstrated underwriting expertise, a strong and efficient regulatory regime, Solvency II equivalence and reciprocal jurisdiction status in the US.”

It added that Bermuda had already coped with the 2017 Tax Cuts and Jobs Act lowering the US corporate tax rate to 21% from 35% and established the base erosion and anti-abuse tax (BEAT).

“The TCJA reduced the long-standing tax advantage of companies incorporated in Bermuda versus the US to a greater extent than is expected with the passage of a 15% global minimum tax rate,” the analysis notes.

“Bermuda re/insurers should have time to make necessary adjustments before the 15% global minimum tax is finally implemented, which is likely to serve as a catalyst for price increases to help offset added costs. However, we view the current 2023 target effective date as aggressive, given the large number of countries that have to pass legislation,” it concludes.