US tax reforms will be “credit negative” for Bermuda reinsurers

Tax reforms passed by the US Congress will be “credit negative” for the Bermuda re/insurance market, according to Fitch Ratings.

The rating agency said the tax reforms will benefit US reinsurers at the expense of Bermudian and other international reinsurers serving the US.

The Tax Cuts and Jobs Act will cut the US corporate tax rate to 21 per cent from 35 per cent, reducing Bermuda’s tax advantages over US rivals. A new tax on premiums ceded by US insurers to foreign affiliated reinsurers will be levied. The Base Erosion and Anti-Abuse Tax will reduce the tax advantage of reinsuring US risks to Bermuda.

“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,” Fitch said.

“Moreover, partly in anticipation of US tax reform, Bermudian reinsurers have been adapting their businesses and increasing their geographic diversification.

“Nonetheless, the US continues to be their most important market. Significant declines in business or earnings could prompt negative rating actions.”