Island may take hit from Trump tax cuts
Cuts in the corporate tax rate in the US in the wake of Donald Trump’s White House victory could hit Bermuda, experts warned yesterday.
Michelle Seymour Smith, CEO of Arch Re, said: “This is one that’s coming to us sooner rather than later.
“I believe in the first 100 days of the presidency, we will see something. What that is remains to be seen.”
Mr Seymour Smith was speaking as part of a panel discussion on how to chart a course through a volatile economic landscape at the EY Global (Re)Insurance Outlook conference yesterday.
Ms Seymour Smith said that US companies faced being penalised if they shift business outside of America.
She predicted: “We will see a huge influx of capital into the US, detracting from the Bermuda market.”
But Ms Seymour Smith stressed that “the need for the Bermuda market doesn’t go away” and if it was severely damaged, US consumers would have to face higher prices for insurance products.
And she added: “The Bermuda market is good for US risk.”
Panellist Laura Taylor, managing partner at Nephila, said that lower corporate tax and penalties designed to keep business in the US would erode some of Bermuda’s advantages.
And she added: “We will all have to up our game here on what we can deliver here because we won’t have that easy win.”
Jonathan Reiss, chief financial officer at the Hamilton Group, said: “We offer a much greater efficiency to the insurance markets and I do believe if that goes away from the offshore world or it gets damaged, the price to the insured will go up.”
He added: “Frankly, I don’t think we know what will happen, but the possibility of change is as great as it’s been in my career.”
The panellists identified the UK’s vote to leave the European Union, dubbed Brexit, allied to possible changes to the Solvency II rules designed to give countries outside the EU a level playing field doing business inside it, which would leave the UK without a voice at the negotiating table, as a potential risk for the island, while mergers and acquisitions were likely to continue.
Ms Seymour Smith said: “If you look at it purely from the insurance and reinsurance industry, most companies are multi-jurisdictional. The big challenge is for companies which are on one side of the Atlantic or the other.”
She added the UK’s Prudential Regulation Authority was one of the leading advocates for Solvency II rules, but that Britain may lose its seat at the table, even though it might acquire, as Bermuda has, Solvency II equivalence with the EU.
But Ms Smith said: “There is going to be a long period of volatility which, as we have said, is not the best thing for the industry.”
April Galda, co-CEO, reinsurance at Global Atlantic Re, said that Solvency II was generally a positive because it ensured that policy holders would be sure of payment in the event of a claim.
Ms Galda added: “We will continue to see some pretty good drivers from property and casualty in mergers and acquisitions.”
Mr Reiss said: “I definitely expect to see more mergers and acquisitions in the Bermuda market.”
He explained that, under market stresses, continued activity in the area would be driven by shareholders.
And Mr Reiss added: “At the end of the day, the UK having no voice in the EU is of concern to us. We are a British territory here. The EU is due to revisit Solvency II at the end of 2018 — how that plays out remains to be seen.”
Mr Reiss, who said he would have preferred the UK to remain in the EU, added: “It’s hard to predict what will happen, but there is a lot of change going on in the EU.”