US tax reform and the insurance industry

Tax reform impact on the insurance industry

On December 22, 2017, President Trump signed H.R. 1, formerly known as the Tax Cuts and Jobs Act, into law, completing an ambitious overhaul of US business and personal tax requirements. The bill enacts substantial changes to the overall corporate tax structure, as well as a host of provisions specific to the insurance industry.

This Deloitte analysis provides a summary of significant changes that apply to all corporations. It also highlights tax reform's impact specifically on life insurers and nonlife insurers, including international provisions, financial accounting implications, and overall takeaways of US tax reform for the insurance industry.

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Tax reform impact for life insurers

The biggest tax reform implications specific to life insurance companies are changes to calculations for:

• Life insurance reserves
• Deferred policy acquisition costs (DAC)
• Basis of computing reserves
• Company's share of certain tax-favored investments

Life insurers will also be affected by changes to insurance product law, including new reporting obligations on reportable policy sales for both the purchaser of the policy and the issuing life insurance company.

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Tax reform impact for non-life insurers

Significant changes to the taxation of property-casualty (P&C) and health insurance companies affect loss reserve discounting and the proration of certain types of investment income.

• Loss reserve discounting is projected to raise $13.2 billion from 2018 through 2027
• Proration rules for nonlife insurance companies are projected to raise $2.1 billion from 2018 through 2027
• Net operating losses (NOLs) may experience increased complexity

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Insurance industry and international provisions

In addition to the tax reform impacts on US operations of domestic insurance companies, significant overhaul of international tax rules will impact global operations of many multinational insurance companies and groups.

Our report includes information on:

• Changes to subpart F
• The new participation exemption system for earnings
• The new BEAT minimum tax, which may require significant restructuring to operating models with a cross-border component
• The new bright-line test to avoid classification as a PFIC
• Expansion of the CFC US shareholder definition and attribution rules

In addition to technical tax changes, the US tax reform law has significant implications for the presentation of audited financial statements under US GAAP and Statutory Accounting Principles.

Learn more about these and other highlights of tax reform's impact on the insurance industry, including our overall takeaways here: US tax reform: Impact on insurance companies.

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Move forward with confidence: Tax reform resources from Deloitte

Deloitte Tax LLP's insights, analysis, and service offerings help you understand the full scope of tax reform, its impact on your organization, and how to plan for what comes next:

• Reshaping the code: Understanding the new tax reform law examines the approved tax reform law (H.R. 1) and its likely impacts on businesses and individuals
• US Tax Reform Dbriefs webcasts feature practical knowledge and valuable updates from Deloitte specialists
• Deloitte's Tax Reform Services help you analyze impacts, prioritize opportunities, create action plans, and monitor evolving tax policy
• Deloitte tax@hand provides news and insights for global tax professionals—updated daily and available via a secure digital platform on any device

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