In contrast to the last US President, Joe Biden is more focused on recovery than partisan politics, and he looks set to use his “bully pulpit” to drive significant change in everything from foreign policy to taxation—all of which will impact the re/insurance industry.
In particular, the industry is concerned about inflation and tax reform, especially in the wake of COVID-19 rescue efforts. This was one of the main talking points from a panel discussion titled “What the US election result means for the re/insurance market”. The discussion took place on Intelligent Insurer’s Re/insurance Lounge, an online platform where interviews and panel discussions are available on demand.
The event featured Frank Nutter, president of the Reinsurance Association of America; Michael Biltoo, partner at Kennedys; Nat Wienecke, senior vice president federal government relations & political engagement at the American Property Casualty Insurance Association; and Joel Wood, senior vice president, government affairs at the Council of Insurance Agents & Brokers.
Nutter highlighted a clear difference in focus between the new administration and Trump’s presidency, which in its last year was heavily centred on the election and the politics surrounding it, while in the Senate there was an emphasis on judicial appointments.
“Now we are seeing much more focus on economic recovery and another stimulus package, as well as the COVID-19 distribution. The focus has shifted away from the politics of the election to the recovery,” said Nutter.
He also highlighted the fact that the huge costs associated with the stimulus packages and the COVID-19 response are set to have a significant impact on taxes.
“We are seeing much more focus on economic recovery and another stimulus package.”
Frank Nutter, RAA
Impact on tax
Wienecke noted: “We’re probably looking at tax packages, perhaps an increase in the corporate tax rate, and perhaps a focus on international tax provisions that affect how businesses operate in the US as well as abroad.
“I’m not sure I can say that there’s an immediate impact on insurance markets, but what I can say, from a policy perspective, is that a number of areas are likely to change dramatically.”
The health and success of the American economy is “extremely important to American insurers” he continued, adding that insurers have outsized exposure to the fixed income market—meaning that companies’ economists are looking very hard at the inflation question and what happens to those fixed-income investments should inflation rear its head.
“In one sense, higher interest rates are good for our returns. But if higher interest rates are coming along with higher inflation, that affects our balance sheet significantly.”
He added that one area of focus relates to changes in international policy. “The administration will be looking at all sorts of sanctions regimes around the world, starting with Iran and elsewhere, and that will have an effect.
“International trade will be another area of focus. Tariffs—especially for steel, aluminium and auto parts—have been a significant driver of rate increases for consumers, and those costs have been passed along. I think we’ll see some pretty rapid changes in some of those policies as well.”
“Companies’ economists are looking very hard at the inflation question.”
Nat Wienecke, APCIA
Wood said that the number one question he has been hearing from brokerage executives since the election has been about the possibility or probability of tax hikes.
“This is particularly acute in the brokerage sector, because of the mergers and acquisitions (M&A) activity that our association has benefited from—and that we’ve been the victim of, as well. We’ve seen that fountain of M&A growth, particularly in the fourth quarter of 2020, as many firms anticipated a Biden administration and a Democratic Congress.”
He said that brokers are less concerned about the personal income tax increases of those making over $400,000 than they are about what’s going to happen regarding capital gains tax. He noted that Chuck Schumer’s narrow majority in the Senate leaves no margin for error and the 60-vote threshold is not likely to be met on partisan issues such as tax increases.
He expects that the second COVID-19 relief package later in 2021 could combine infrastructure spending as well as some tax increases, and a handful of conservative-to-moderate democratic senators will control the fate of that.
Wienecke agreed that tax policy will be very important to the re/insurance industry. “The US has a unique part of the tax code for insurers that represents our business model and represents that our losses can be cyclical, and how those losses affect the companies to smooth that out over a period of time.
"Working with a new administration to make sure they understand the unique nature of our business and our business model will be a top priority.”
“As soon as there are US sanctions in play, it affects businesses around the world.”
Michael Biltoo, Kennedys
Biltoo turned his focus to foreign policy, including sanctions on several countries such as Iran and Venezuela—as well as the ongoing issue of trade with China and the policies surrounding that.
“It’s still too early to see precisely what position is going to be taken. The consequences of US sanctions are being felt worldwide. As soon as there are US sanctions in play, it affects businesses around the world and what they can do in those countries—and that, in turn, affects what insurance you can have in place.”
Summing up, Wood highlighted a desire for economic recovery and stability. “I hope that we’re looking forward to an era when things can calm down a bit, where businesses can continue to flourish—and to an economic recovery that will be of benefit to our clients and to our industry.”
To view the full Re/insurance Lounge session click here
Image courtesy of Shutterstock / Stratos Brilakis