It is unlikely that there will be significant job losses in Bermuda’s insurance sector as a result of US tax changes, however direct investment flows from the US could fall.

Those are among the thoughts presented by Moody’s Investors Service, part of the ratings and research organisation, in its new report Sovereigns — Global: US tax reform will have marginal impact on exposed low-tax sovereigns globally.

It said direct investment flows from the US into low-tax countries are likely to fall, in some cases meaningfully, as a result of the US tax overhaul, which generally disincentivises multinationals from keeping assets and operations in low-tax jurisdictions.

While the impact on the sovereign level would be generally minimal due to governments’ limited reliance on taxes levied on US multinationals and the importance of non-tax motives for maintaining local presence, foreign direct investment flows from the US may decline markedly in some cases.

Moody’s assessed the general impact on Bermuda and eight other sovereigns, including Cayman Islands, Ireland, Bahamas and Switzerland.

It said Bermuda is among the most exposed sovereigns, given the large cross-border asset ownership and its notable level of service exports to the US.

According to Moody’s, the introduction of the Base Erosion and Anti-Abuse Tax in the US will likely force Bermudian insurers to transfer capital to, or keep the capital at, their US subsidiaries because the latter will no longer be able to cede premiums to their affiliated reinsurers in Bermuda without incurring the additional cost because of the new tax.

Moody’s noted: “However, its competitive human capital base and regulatory regime mean that Bermuda is unlikely to experience a significant loss of jobs in the insurance sector.”

As in the case of Bermuda, the most likely impact of the tax reform for the Cayman Islands will be on its insurance industry. Similar to Bermuda, Moody’s expect the Cayman Islands’ insurance sector to remain competitive even after the change in relative tax rates.

FDI flows could materially decline for Ireland. While annual investment inflows are a fraction of the outstanding stocks (at an average of 16 per cent over the past five years), they are nevertheless material, amounting to 20 to 30 per cent of Ireland’s GDP between 2012 and 2016 and around 25 per cent for the first three quarters of 2017.

The report goes on to show that in some cases, exposure to the US tax reform is within an offshore sector that is not integrated into the sovereign’s local economy and generates minimal revenue for the government. In other cases, US multinational corporations are likely to maintain their activities to benefit from regulatory regimes conducive to investment, competitive labour forces or favourable geographic locations. The most exposed sovereigns without established non-tax competitive advantages may resort to offering additional tax incentives to prevent re-shoring.

Moody’s research subscribers can access the report, Sovereigns — Global: US tax reform will have marginal impact on exposed low-tax sovereigns globally, at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113795