Best's Commentary: COVID-19 Stimulus Package to Benefit U.S. Insurers

AM Best expects the recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act to provide U.S. insurance companies tax relief in the event of operating losses due to the COVID-19 pandemic outbreak.

A new Best's Commentary, "COVID-19 Stimulus Package to Benefit Insurers," notes that the $2 trillion CARES Act provides a special rule applicable for all companies' net operating losses in 2018 to year-end 2020, allowing these to be carried back to each of the five tax years prior to the year of loss, which could help all insurance segments. The Tax Cut and Jobs Act (TCJA), passed in late 2017, had repealed all net operating loss carrybacks for life companies, while preserving the net operating loss provisions for property/casualty companies. Allowing insurers to carry net operating losses to years prior to the effective date of the TCJA gives them the ability to use the 35% tax rate that was in effect then, thereby increasing tax credits. The removal of carryback provisions in the TCJA also had forced life/annuity writers to reduce the amount of admitted deferred tax assets. With the modified carryback provisions, net admitted assets may increase at least over the period up to year-end 2020.

The CARES Act also allows companies to file for accelerated alternate minimum tax (AMT) credits, which could be a backstop in the event of a surge in health claims during the pandemic. A number of non-profit Blue Cross Blue Shield companies enjoyed significant windfalls from the TCJA due to the elimination of the AMT. This combined with the reduced tax rate resulted in significant surplus increases in 2017 and 2018. These companies are in a very strong capital position owing to the AMT credits, but decisions to file for accelerated credits will depend on tax strategies employed as the pandemic evolves.

To access the full copy of this commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=296099.

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