The US Tax reform will be a mixed bag for captive insurance companies and has not affected the credit ratings of A.M. Best-rated captives, according to a new A.M. Best briefing.
A.M. Best’s briefing, ‘Tax Reform: No Impact on Captive Ratings Anticipated’ outlines how particular provisions of the Tax Cuts and Jobs Act may impact captives.
The report says that making a “one size all assessment” to the reform’s impact of captives is “impracticable”.
It notes that in some cases the tax reform may be positive for offshore captives that have made the section 953(d) election under the Internal Revenue Code, which allows them to be taxed as US corporations.
But some parent companies are considering alternative strategies due to the sweeping changes.
Despite the new tax law changes coming into effect in the 2018 tax year, the reduction in the corporate tax rate and the repeal of the alternative minimum benefits captives in 2017, as the rate reduction required that captives revalued their deferred taxes at the new lower corporate tax rate of 21 percent.
The report revealed that none of the A.M. Best-captives’ credit ratings have been impacted by the tax reform.
A.M. Best concluded: “In many cases, the reduced corporate tax rate has resulted in higher net income, but for others, changes to the business structure may have affected operating performance.”
“US-parented captives in foreign domiciles are working to achieve the most efficient solutions from an operations and cost perspective.”
“Management teams considering strategic alternatives in the wake of tax reform continue to keep A.M. Best abreast as they contemplate changes to existing business or new corporate formations.”