I.I.I. Economic Snapshot

The Annual Tab

  • The chart shows: The blue bars are income taxes paid by the P/C industry each year since 2008. The green bars are income taxes paid by the life/annuity industry.
  • The back story: P/C industry tax payments had been fairly steady until 2017, although clearly affected by tough underwriting years. Life tax payments have been more variable and apparently affected more by investment experience than insurance operations.
  • The takeaway: In most years each industry segment has paid $8 billion to $10 billion in income taxes. Although the new tax act could, on net, reduce this amount, few expect a large drop.

How Much Does the Industry Pay?

(Federal and Foreign Income Tax, Excluding Capital Gains)
$ Billions

Sources: NAIC data, sourced from S&P Global Market Intelligence; I.I.I. calculations.

  • The chart shows: The effective tax rate paid by the P/C industry (blue line) and Life/Annuity industry (green line).
  • The back story:  Since 2011, the p/c industry has incurred an effective income tax rate of 13% to 15%.  In recent years, the life/annuity industry has paid at a 20% to 25% rate.
  • The takeaway: The drop in the corporate tax rate from 35% to 21% could reduce the effective tax rate that the industry pays, providing resources for expansion or upgrades to insurer capacity.

What Rate Has the Industry Paid?

(Effective Federal and Foreign Income Tax Rates, Excluding Capital Gains)*

*Income taxes as a percent of net income after dividends to policyholders and after capital gains taxes.

Sources: NAIC data, sourced from S&P Global Market Intelligence.

Tax Impact by Industry

  • The chart shows: Major tax changes affecting corporations generally—including insurers—as described and measured by the U.S. Congress Joint Committee on Taxation.
  • The takeaway: Some taxes will be cut, others raised. The impact on any given firm will depend on the nature and location of their business, among other factors.

Tax Reforms Effects: Across All Corporations

 

*Projected cumulative profits for 2018-2027 = $22,273.6 billion. Projection = average profits for 2007-2016, growing by assumed nominal GDP growth of 5% per year.

Source of amount of forecast tax changes: Joint Committee on Taxation, JCX-67-17, published December 18, 2017.

  • The chart shows: Major tax changes affecting property/casualty insurers, as described and measured by the U.S. Congress Joint Committee on Taxation.
  • The takeaway: Some P/C insurers will see tax hikes from these changes. The impact on any given firm will depend on the nature and location of their business, among other factors.

Tax Reform's Effects: Property/Casualty Insurers

 

*Projected cumulative profits for 2018-2027 = $602.3 billion. Projection = average profits for 2007-2016, growing by assumed nominal GDP growth of 5% per year.

Source of amount of forecast tax changes: Joint Committee on Taxation, JCX-67-17, published December 18, 2017.

  • The chart shows: Major tax changes affecting life/annuity insurers, as described and measured by the U.S. Congress Joint Committee on Taxation.
  • The takeaway: Some insurers will see tax hikes from these changes. The impact on any given firm will depend on the nature and location of their business, among other factors.

Tax Reform's Effects: Life Insurers

 

*Projected cumulative profits for 2018-2027 = $337.1 billion. Projection = average profits for 2007-2016, growing by assumed nominal GDP growth of 5% per year.

Source of amount of forecast tax changes: Joint Committee on Taxation, JCX-67-17, published December 18, 2017.

Conclusion

While overall changes seem likely to benefit carriers, industry-specific changes are more of a mixed bag.