Lower corporate tax rates in the $1.5 trillion tax reform package are expected to help the life insurance industry in at least two ways, industry executives say. One way is that group life insurance sales will see a boost as Americans join payrolls in an expanding economy. The other way is that those lower corporate tax rates will lower risk-based capital (RBC) ratios for insurers.
The tax reform bill, which is expected on the president’s desk soon, will lower RBC ratios for life insurers by an estimated 65 to 100 basis points, executives said in a series of calls with analysts.
RBC ratios are considered a key measure of a company’s capital strength to support business operations and limit the amount of risk an insurance company can take.
The GOP-sponsored tax reform bill slashes the corporate tax rate from 39.5 percent to 21 percent.
The lower corporate rate is “a likely 96-point reduction in the reported risk-based capital ratios across the country,” Morgan Stanley life insurance industry analyst Nigel Dally said in a research note published in early December.
Changes under the Tax Cuts and Jobs Act of 2017 will not affect company capital deployment plans, but could require a revisiting of company capital positions by ratings agencies, the executives also told Wall Street analysts.
Life insurers would no longer face an 8 percent surtax on taxable income, The Wall Street Journal reported Tuesday.
Group Insurance a Winner
Tax reform will be good for MetLife, “especially its group insurance business,” Steven A. Kandarian, MetLife chairman, president and CEO, said in an 2018 outlook call on Friday.
“There’s a fairly close correlation between employment, economic growth and the group insurance business,” he said.
Neil Bradley, chief policy officer at the U.S. Chamber of Commerce, called the changes in the corporate tax rate a “home run.”
The bill includes changes to the inheritance tax.
When someone dies, the estate owes taxes on the value of assets transferred to heirs above $5.5 million for individuals, $11 million for couples. The tax reform bill doubles those limits and repeals the tax entirely in 2025.
Democrats, none of whom voted for the tax reform bill, and other critics railed against the changes.
They said it was a corporate giveaway that would only enrich large shareholders and wealthy individuals at the expense of middle-income taxpayers while adding as much as $2 trillion to the deficit.
Polls show Americans have deep reservations about the tax reform bill.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].