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RenaissanceRe to Write-Down DTAs Due to U.S. Tax Reform

Zacks Equity Research

RenaissanceRe Holdings Ltd. RNR has announced an anticipated write-down of its deferred tax assets (DTA) as an outcome of the recently-passed Tax Cuts and Jobs Act.

As a result of the write-down, the company’s net income will drop by $40 million during the period in which the tax bill will be enacted. Otherwise, RenaissanceRe currently expects that the economic impact of the Tax Bill, which brings down the corporate tax to 21% from 35%, will be minimal.

The U.S. Senate recently passed The Tax Cuts and Jobs Act, marking President Trump’s first major legislative victory. This tax reform is anticipated to drive companies’ revenues.

Trump noted that such a bill is a “big, beautiful Christmas present” for families, while the White House press secretary said that “a simple, fair, and competitive tax code will be rocket fuel for our economy, and it's within our reach.”

Notably, this biggest ever one-time drop in business tax will likely be conducive to economic growth.

Coming back, the write-down of the deferred tax assets (DTA), in line with the new tax regime, will drain RenaissanceRe’s capitalization levels. Other U.S. life insurers and multiline insurers, having sizeable DTAs on their balance sheets, will also face the same impact in the near term.

RenaissanceRe’s shares have declined 6.8% in the year so far, vastly underperforming its industry which recorded growth of 18.5%.  

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.

The bill looks like a major legislative achievement having been supported widely by industry groups. The Coalition for American Insurance, which represents major U.S.-based insurance groups (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. WRB have expressed support for this historical reform.

RenaissanceRe currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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