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Bests Briefing: Alternative Captive Strategies Contemplated in Wake of Tax Reform

The impact of tax reform is a mixed bag for captive insurance companies,
although in some cases, it is a positive for offshore captives that have
made the Section 953(d) election under the Internal Revenue Code, which
allows them to be taxed as a U.S. corporation, according to a new A.M.
Best briefing. However, some parent companies are considering
alternative captive strategies because of the sweeping changes.

The intent of the Best’s Briefing, “Tax Reform: No Impact on
Captive Ratings Anticipated,” is to outline how certain provisions of
Tax Cuts and Jobs Act may affect captives, with the caveat that the vast
differences in corporate formations, the ways in which business is
transacted and the jurisdictions in which the companies operate makes a
“one size fits all” assessment as to how tax reform has impacted
captives is impracticable.

Although the new tax law changes apply to the 2018 tax year, the
reduction in the corporate tax rate, along with the repeal of the
alternative minimum tax, benefits captives in 2017 as the rate reduction
required that captives revalue their deferred taxes at the new lower
corporate tax rate of 21%.

To date, tax reform has not affected the Credit Ratings of A.M.
Best-rated captives. In many cases, the reduced corporate tax rate has
resulted in higher net income, but for others, changes to the business
structure may have affected operating performance. U.S.-parented
captives in foreign domiciles are working to achieve the most efficient
solutions from an operations and cost perspective. Management teams
considering strategic alternatives in the wake of tax reform continue to
keep A.M. Best abreast as they contemplate changes to existing business
or new corporate formations.

To access the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=274749.

A.M. Best is the world’s oldest and most authoritative insurance
rating and information source. For more information, visit www.ambest.com.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its
affiliates. ALL RIGHTS RESERVED.

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