Bermuda insurers and reinsurers may lose their competitive advantage due to U.S. President Donald Trump’s plan to restructure the U.S. tax code, Standard & Poor’s warns in a new report.
Few details are available at this stage, but Standard & Poor’s said that tax reform could make Bermuda’s many corporate benefits less alluring, including “its ease of doing business, sophisticated regulatory regime, deep talent pool, proximity to the U.S. market, and track record for efficiently paying claims.”
All of Bermuda’s benefits are “difficult to replicate” and help keep the insurance industry a durable vital thing, S&P said, adding that this reality makes the prospect of far-reaching U.S. tax reform disconcerting for cheerleaders of the Bermuda market who value its uniqueness compared to the U.S.
“The prospect of lower corporate tax rates, a border adjustment tax, and a lighter-touch regulatory regime in the U.S. could erode the relative attractiveness of Bermuda as a jurisdiction, and the competitive advantage enjoyed by Bermuda” insurers and reinsurers, S&P said.
As Standard & Poor’s notes, a couple of broad proposals have been forwarded that would make the U.S. a more attractive corporate climate for both insurers and reinsurers. One would reduce corporate tax rates to 15 percent from the current 35 percent. While most U.S. insurers and reinsurers already pay an effective tax rate that is lower than the current rate, a still-lower U.S. tax rate would level the playing field even further “between onshore and offshore effective tax rates.” This alone could lead some Bermuda-based companies to consider reassessing where they keep their tax domicile, Standard & Poor’s said.
President Trump and others have also proposed a border adjustment tax for companies that move production of goods outside of the U.S. to lower-cost countries and then sell those products back to the U.S. Standard & Poor’s notes that it is early to determine if such a rule would affect insurers and reinsurers, versus manufactures, and it said that a lower corporate tax rate is more likely. But if a border adjustment tax were applied to Bermuda insurers and reinsurers, this would make Bermuda a far-less attractive option, according to the S&P report.
Beyond possible tax issues, Standard & Poor’s said that Trump administration policies could have a number of unintended consequences such as currency volatility and overall uncertainty.
Source: Standard & Poor’s