Trump Tax Cut: Potentially Big Bottom Line Benefit to U.S.-Domiciled Companies

January 19, 2018 by Elizabeth Blosfield
Jay Gelb

Federal tax reform was a big topic of discussion at the Insurance Information Institute’s 2018 P/C Joint Industry Forum, with panelist Jay Gelb of Barclays Capital stating the recently passed tax law is going to be “a clear bottom-line benefit for U.S.-domiciled companies.”

In particular, he pointed to Berkshire Hathaway as one company estimated to see massive benefit as a result of the new legislation.

“We’ve actually estimated for Berkshire Hathaway alone, just on their deferred tax liability going down, it’s a $34 billion benefit – about 12 percent of their book value,” Gelb said while speaking on a panel at the forum, held Jan. 16 during the III Joint Industry Forum at New York City’s Marriott Marquis. “Berkshire’s earning power going forward should benefit by around 12 percent as well.”

U.S. President Donald Trump signed the Tax Cuts & Jobs Act into law on Dec. 22. Under the legislation, insurers, agencies and other businesses organized as C corporations will see their statutory tax rate cut from a top rate of 35 percent to 21 percent.

Announcing in a recent public statement that more than one million American workers are receiving special bonuses in response to President Trump signing the act, U.S. Treasury Secretary Steven T. Mnuchin called it “the most significant tax cuts and reform package in over three decades.”

Indeed, Hartford, Conn.-based The Hartford and New York City-headquartered Travelers confirmed to Insurance Journal they are among several companies giving their employees bonuses of $1,000 each if they earn $75,000 or less annually.

According to Barclays research, many companies with all U.S. operations are expected to see a large boost to their earnings on an ongoing basis because of the new law, Gelb added during the panel discussion.

“Then the question becomes, ‘How much of that will actually go to the bottom line in terms of will rates be adjusted to take that into account or will competitive factors ramp up?'” he said.

(For more on this topic, watch PCI’s Sampson: Insurers Came Out Ahead With Trump Tax Cuts.)

Although Gelb stated Barclays still expects the majority of the benefit to reach the bottom line, as far as offshore insurers and reinsurers are concerned, it is estimating a neutral to slightly negative impact.

Paul McCaffrey

While some mixed feelings linger depending on vantage point, CSAA Insurance Group Chief Financial Officer Paul McCaffrey said in an interview with Insurance Journal that he believes the tax law will be a net benefit over time as a lower tax burden should free up more dollars to invest. Many panelists at the conference expressed similar optimism, stating that they were generally happy with the changes.

“Personally, our company is really pleased with the lowering of the corporate rate,” panelist Bruce Kelley, president and CEO of EMC Insurance Companies, stated.

“Generally speaking, so far so good,” added panelist Brian Duperreault, president, CEO and director at AIG.

Brian Duperreault

That said, panelists were in agreement that there are some gray areas in terms of specific impact as “a lot of companies are still working through all of the details,” according to McCaffrey.

“It got put together so quickly,” Duperreault said. “There are still some things that need to be clarified.”

Although it may take time for the new tax law to be fully understood, one thing is clear, according to Gelb.

“I can’t really remember in the past almost 20 years spending so much time on one issue,” he said. “It’s extremely complicated.”

*Elizabeth Blosfield is the East Region Editor for Insurance Journal.