US tax cuts hit insurers in Q4 but offer long-term gains

A number of US insurers have released estimates of what impact new  US tax laws will have on their businesses with most anticipating immediate one-off charges but a longer-term positive effect on profits.

The Hartford said it estimates its fourth quarter 2017 financial results will be reduced by approximately $850 million due to the impact of the new US tax law and $117 million, after tax, for catastrophe losses.

The approximately $850 million charge from the new US tax law is primary due to the reduction in the US corporate tax rate from 35 percent to 21 percent effective January 1, 2018 and its impact on the company’s net deferred tax asset position. The estimate is based on current accounting guidance and the company’s net deferred tax assets as of September 30, 2017, and the final amount will depend on fourth quarter 2017 financial results.

The company stressed that the charge will not affect core earnings, a non-GAAP financial measure. Although the new US tax law reduces the company’s net deferred tax asset position, the company expects a net favourable future economic impact from both the lower corporate income tax rate and the repeal and refunding of the corporate alternative minimum tax credits.

National General Holdings also said it expects its future after-tax earnings to be positively impacted by the recently implemented reduction to the US corporate tax rate. But it too anticipates that the reduction will force it to revalue its deferred tax assets, which will result in a one-time non-cash tax charge of approximately $20-30 million after-tax, which will be recorded in the fourth quarter of 2017.

National Mortgage Insurance Corporation (NMI Holdings) also said it expects to record a one-time, non-cash charge related to the re-measurement of its deferred tax assets and liabilities. The charge is expected to be approximately $13 million to $15 million and will be reflected in the company's income tax expense for the fourth quarter ended December 31, 2017.

But the company also said expects that the new corporate tax rate will provide significant benefits to its tax expense in 2018 and future periods.

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