Aflac Inc. AFL has announced that it will invest $250 million in different areas such as employee welfare, business growth and provide support to childhood cancer initiatives.
This development follows the recent passage of the tax reform by Donald Trump, which cuts the corporate tax rate to 21% from 35%. Per management, this easy tax regime provides it an opportunity to make investments like the latest one.
Moreover, for its U.S workforce Aflac intends to make better retirement benefits by increasing the company's 401(k) match from 50% to 100% on the first 4% of employee’s contribution while making a one-time contribution of $500 to every employee's 401(k) plan. It will also offer certain hospital and accident insurance products to all employees free of charge as the company currently does with its core cancer insurance products.
On the business growth front, the company would invest in technology and digital businesses like Empowered — a subsidiary of Aflac.
The third leg of this Zacks Rank #3 (Hold) company’s investment will be to focus on its commitment for childhood cancer programs.You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Year to date, Aflac has gained 27% outperforming the industry’s growth of 25%.
Notably, the U.S. Senate’s passage of The Tax Cuts and Jobs Act marked President Trump’s first major legislative victory. This tax reform is anticipated to drive companies’ revenues. According to Trump, such a bill is a “big, beautiful Christmas present” for families while the White House press secretary declared it to be “a simple, fair, and competitive tax code [that] will be rocket fuel for our economy, and it's within our reach.”
In fact, this is the biggest ever one-time drop in business tax that is likely to be conducive to economic growth.
However, this reform brings a mixed impact for insurers. RenaissanceRe Holdings Ltd. RNR announced an anticipated write-down of its deferred tax assets (DTA), which will reduce its net income by $40 million following the enactment of the tax bill. Otherwise, RenaissanceRe expects the economic impact of the Tax Bill to be minimal.
Nevertheless, a 21% corporate tax rate will lead to higher after-tax income for most insurers. Apart from boosting margins, the tax-rate reduction will also make the U.S insurers more competitive, globally.
In addition to the above, the tax reform, which includes lower domestic tax rates on repatriation of income stashed offshore will serve the foreign insurers well, who moved abroad the profit generated in the U.S to avoid tax.
Markedly, the bill looks like a major legislative achievement having been supported widely by industry groups. The Coalition for American Insurance, which represents major US-based insurance groups like — Alleghany, The Allstate Corp. ALL, American Family, American Financial Group Inc. AFG, Berkshire Hathaway, Cincinnati Insurance, CAN, EMC Insurance, Liberty Mutual, The Hartford, Travelers and W.R. Berkley Corp. — have expressed support for this historical reform as well.
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