Some Bermuda reinsurers may consider changing tax domicile if the US enacts the tax cuts proposed by Donald Trump in his presidential election campaign.

That is the view of analysts at Standard & Poor’s Global Ratings, whose new report on the island’s flagship insurance industry illustrates how swathing US tax cuts would dramatically reduce the island’s tax advantage over American competitors.

Mr Trump has also spoken about border-adjustment tax, or tariffs, mainly in the context of goods, rather than services such as reinsurance. S&P said this could also be an issue for Bermudian firms, especially if the US considers reinsurance sourced from overseas as an import.

S&P added that while there was little detail on how the new administration’s economic vision would translate into policy, the situation represented a new area of uncertainty for Bermudian companies.

On the campaign trail last year, Mr Trump proposed cutting the US corporate tax rate from 35 per cent to 15 per cent.

In its report entitled “The Bermuda Triangle: The New US Administration, Taxes and Reinsurance”, S&P said such a move, combined with potential tax on imports and lighter-touch regulation in the US, could “erode the relative attractiveness of Bermuda as a jurisdiction”.

“Although most US re/insurers already pay effective tax rates below the current rate, a lower US tax rate would further compress the spread between onshore and offshore effective tax rates,” the report states.

“As a result, depending on the geographic footprint and risk profile of their business, some Bermudians may consider reassessing their tax domicile.”

According to S&P’s analysis, Bermuda re/insurers have had a roughly 20 percentage-point advantage in terms of effective tax rate, compared to large US property and casualty re/insurers over the past ten years. That would narrow to about 5 percentage points if Mr Trump’s proposal becomes reality.

Paul Ryan, Speaker of the US House of Representatives, has proposed an alternative plan that would cut the corporate tax rate to 20 per cent, rather than Mr Trump’s 15 per cent plan.

On the border-adjustment tax, S&P sees a lower level of threat to Bermuda, but not one that cannot be ruled out.

“Although it’s likely the border-adjustment tax will be targeted towards industries that require manufacturing jobs instead of a relatively small, services-oriented industry like reinsurance, there could be parallels with Bermuda re/insurers that sell protection to customers in the US,” S&P stated.

“It is too early to tell what the final rules will be or how they will apply to Bermuda re/insurers. At this early stage, however, we believe a lower corporate tax rate as part of a broader overhaul of the US tax code has a higher likelihood of materialising than a border-adjustment tax, which has met with resistance from other sectors and from lawmakers on both sides of the aisle.

“Still, if reinsurance underwritten in Bermuda were considered the import of a product that cost American jobs, rather than an export of risk abroad, it is conceivable that the proposed border-adjustment tax could apply.”

Mr Trump’s efforts to boost economic growth could also have knock-on effects for the industry, such as higher interest rates.

In the short term, this would likely “lower re/insurers’ shareholders’ equity levels as bond portfolios fall in value, while their cost of capital rises with the increase in risk-free rates”, S&P said.

However, in the longer term it would lead to higher investment income as capital is reinvested at higher rates and possibly slow the flow of capital into insurance-linked securities as returns on more-mainstream asset classes rises.

The authors of the report, led by S&P analysts Taoufik Gharib and Zikomo Simmons, also point out that Bermuda offers more than tax advantages to re/insurers.

“Its ease of doing business, sophisticated regulatory regime, deep talent pool, proximity to the US market, and track record for efficiently paying claims are all difficult to replicate and contribute to the industry’s durability,” they wrote.