The debate over what US tax reforms, which could be signed into law by US President Donald Trump before Christmas, will mean for Bermuda insurers and reinsurers has started as lobby groups continue to press the point that the proposals will concentrate risk in the US and increase premiums for consumers.
Late last week, US Republicans put forward a new version of the Tax Cuts and Jobs Act combining elements of different bills passed by the House of Representatives and by the Senate.
The Act will slash US corporate tax rate 21 percent from 35 percent, reducing the benefit of using overseas domiciles with lower taxation; and also introduce something called the Base Erosion and Anti-Abuse Tax (BEAT), which will hit Bermuda insurance groups that cede premiums from US subsidiaries to Bermuda operations with a 10 percent tax on the transaction (this could be 5 percent in the first year).
The Coalition for Competitive Insurance Rates (CCIR), which lobbies for increased competition within the insurance industry and counts the Association of Bermuda Insurers and Reinsurers as a backer, expressed disappointment in the potential agreement, especially BEAT.
It said BEAT will unfairly slap US consumers and small businesses with higher insurance premiums – undoing potential tax relief they had hoped to get from this bill.
“The global insurance and reinsurance industry is concerned that Congress would include a provision in the Tax Cuts and Jobs Act that will serve only to ‘Americanize’ risk by decreasing capacity benefits to insurance markets globally, thus increasing US prices,” CCIR said in a statement.
“This is truly a blow to consumers and business, particularly those in Florida, Texas, California, South Carolina, Louisiana and other disaster-prone states who rely on this capacity in times of catastrophe.
“The only winner under the double-taxation what will result from BEAT is a group of highly successful domestic insurance companies who stand to benefit greatly from the market distortion this provision will trigger. CCIR welcomes continued dialogue on this issue.”
On Bermuda, companies are already pondering what this will mean for their operations and whether adjustments will need to be made. It seems likely the cost of business would go up for many firms and some funds would need to be relocated to the US as firms choose to be taxed as a US entity rather than move funds.
But most also seem to think a massive change for the island and widespread job losses will be unlikely.
Bermuda, US tax, Insurance, North America, Donald Trump