OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has commented that anticipated structural changes to certain reinsurance arrangements between affiliated insurance or reinsurance companies, prompted by the recent U.S. tax reform law’s enactment, could impact the rating agency’s assessment of group rating affiliations.
A.M. Best’s “rating unit” concept in evaluating insurance group members recognizes that the financial fortunes of certain members may be so intertwined that they are most appropriately analyzed with their group as a whole. An affiliate of a lead rating unit that carries a group rating affiliation is important to the overall group’s primary mission based on its financial, operational or strategic importance.
According to a new Best’s Briefing, “Impact of US Tax Reform on Group Rating Affiliations,” A.M. Best expects its rated U.S.-domiciled insurers and reinsurers to make significant changes to material financial arrangements, such as quota share, excess of loss or stop-loss reinsurance agreements with foreign affiliates, in response to the Tax Cuts and Jobs Act’s base erosion and anti-abuse tax (BEAT) measure. These contracts, considered explicit support under Best’s Credit Rating Methodology, are considered in A.M. Best’s assessment of group rating affiliations.
Material changes to a reinsurance agreement, or outright non-renewal, for any reason, could affect A.M. Best’s assessment of whether a parent is willing and able to provide explicit support to an affiliate. However, explicit support is one of 10 qualitative and quantitative factors used to assess group rating affiliation eligibility, and A.M. Best will consider all of these, including all forms of explicit support, on a situational basis.
A.M. Best expects tax reform to be a net positive for the financial position of U.S. property/casualty insurance companies and U.S.-parented global insurers and reinsurers. The largest benefit will be the reduction in the corporate tax rate; however, other tax reform provisions may limit the benefit of the reduction. Foreign-parented global (re)insurers have publicly stated that the impact of tax reform will not be material, presumably as a result of the multiple platforms in which they can transact business.
To access the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=270307.
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