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How Will the TCJA Affect Life Insurers' Capital?

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The new Tax Cuts and Jobs Act could reduce overall deferred tax asset levels at U.S. life insurers by about 40%.

Analysts at Fitch Ratings included that estimate in a short commentary on the possible effects of the new tax law on U.S. life and annuity issuers.

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

The analysts report that deferred tax assets, or the stored-up capacity to reduce income taxes, now account for about 8% of life insurers’ statutory capital.

A 40% cut in the value of 8% of life insurers’ statutory level would amount to a 3.2% cut in overall statutory capital.

Deferred tax assets “are more material for some insurers” than for others, the analysts say.

But, on the bright side, the tax rule changes should improve the value of the margins in insurers’ statutory reserves, the analysts write.

“Importantly, the reforms do not affect the tax-advantaged status of life and annuity products,” the analysts write. “A reduction in these tax advantages could have triggered a material fall in product sales.”

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