Captive insurers should pay attention to US President Donald Trump’s proposed tax reforms, but they shouldn’t get in the way of formation, according to JLT Insurance Management’s Anne Marie Towle and Thomas Stokes.
The authors of Captives to Gain Momentum in an Uncertain Environment discussed the potential opportunities for captives in the current period of political uncertainty.
Since the beginning of his presidential campaign, Trump has promised to “dramatically lower” US corporate income tax rates to 20 percent. There has also been discussion around a consumption-based tax structure that would completely replace the Internal Revenue Code.
Towle and Stokes explained that regardless of its form, federal tax relief may come at the expense of long-favoured tax breaks, such as expensing loss reserves for insurance companies and deferrals for foreign income.
They suggested that companies considering captive formation will consider potential tax ramifications, however, Towle and Stokes said that “taking a captive-centric approach to all your risk is a benefit that extends far beyond just taxes”.
Although tax has historically been the driver behind captive redomestications, Towle and Stokes argued that a change in attitude towards captives in the US has resulted in favourable legislation and healthy competition.
The vast majority of new captives created over the last 10 years by US companies have been domiciled in the US, they argued.