How Trump's Tax Act Could Affect Annuity Issuers

President Donald Trump signed the new Tax Cuts and Jobs Act into existence on Friday and put the legislative analysts of the world on notice: They now have to find out exactly what’s in the TCJA.

The Republican effort to draft, debate and amend the package was so complicated, and so full of suspense, that observers tended to focus more on who might be voting for or against the package than on the package contents.

Trade groups, rating agencies, accounting firms and law firms are just starting to post detailed analyses of the provisions that might affect U.S. issuers of life insurance and annuities.

(Related: New Tax Act Could Boost Life Settlement Market)

Ryan Krueger, a securities analyst at Keefe, Bruyette & Woods Inc., and Sean Dargan, an analyst at Wells Fargo, are examples of industry watchers who are trying to push the analytical process a step further and speculate about how specific TCJA provisions might affect specific companies.

Here’s a look at five of Krueger and Dargan’s ideas about the effects of TCJA provisions on annuity issuers, drawn from two of their recent research reports.

1.  The issuers’ finances will look different.

Dargan’s team at Wells Fargo predicts that many issuers will end up with lower capitalization levels, because the TCJA will reduce life insurers’ ability to deduct reserves from taxable income. 

(Image: Thinkstock)

The TJCA should also reduce typical issuers’ overall tax bills.

“It seems to us that lower taxes are a net benefit to the industry,” the Wells Fargo team writes.

The Walls Fargo team predicts that the rating agencies and state insurance regulators will adjust their risk-based capital rules and formulas to reflect the new tax rules.

2. The issuers’ profits could be a lot higher.