New reinsurer a response to US tax reform
Bermudian-based insurer James River Group Holdings Ltd has altered its corporate structure in response to US tax reform.
In its fourth-quarter earnings statement, James River said the reorganisation meant its internal quota share would now be ceded to a newly formed Bermudian company called Carolina Re, described as “a related counterparty”.
Carolina Re will formally elect to be a US corporate tax payer.
The Tax Cuts and Jobs Act, which took effect at the start of this year, slashes the corporate tax rate for US companies to 21 per cent from 35 per cent.
It also introduced the base erosion anti-abuse tax, which targets internal company transactions between US companies and their non-US affiliates. This impacts Bermudian insurance groups, which cede premiums from their US subsidiary insurers back to Bermuda by way of quota share reinsurance transactions.
Only affiliated reinsurance business is liable to the tax, not third-party business.
Robert Myron, James River's chief executive officer, said: “In light of recent US tax law changes, we altered our corporate structure after year end.
“We will remain a Bermuda-based company and expect our tax rate will remain consistent with our tax rates over the past five years.”
James River stated: “Effective January 1, 2018, the Company will restructure its internal quota share to be ceded to a newly formed related counterparty, Carolina Re Ltd, which will be licensed as a Bermuda Class 3A re/insurance company.
“Carolina Re Ltd will make a 953(d) election to become a US corporate tax payer. The company does not expect that its third-party casualty reinsurance operations will be affected by the TCJA.”
Ratings agency AM Best said the financial strength rating of A (excellent) of JRG Reinsurance Co Ltd, a subsidiary of the firm, and its US-based affiliates remain unchanged after the restructuring announcement.
Best stated: “AM Best's comment takes into consideration that these steps are in response to the introduction of the Tax Cuts and Jobs Act of 2017.
“The comment also takes into consideration that while JRG Re will no longer act as the internal reinsurer, it will continue to write third-party casualty reinsurance.”