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Trump tax cut may stimulate insurer M&As: Analysts

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NEW YORK — If President-elect Donald Trump follows through on his pledge to cut corporate taxes to 15% from more than 30%, it could lead to more mergers and acquisitions among insurers, a panel of equity analysts said.

In particular, it could lead to more U.S. insurers buying U.S. and foreign rivals rather than foreign-domiciled insurers buying U.S. insurers, said Gary Ransom, a partner at Dowling & Partners Securities L.L.C., an investment firm in Farmington, Connecticut.

Over the past few years, “when you look at pure U.S. companies that were acquired, they were acquired by non-U.S. companies,” he said. For example, Swiss-domiciled Ace Ltd. bought Chubb Corp. and Japanese-owned Tokio Marine Holdings Inc. bought HCC Insurance Holdings Inc.

“There really hasn’t been acquisitions of U.S. buying U.S. of any significance, and I think that is all because of the tax situation. The outsiders have an advantage coming in to purchase a U.S. company,” Mr. Ransom said during a session of the Property/Casualty Insurance Joint Industry Forum held in New York on Tuesday.

In addition, formations of insurers usually happen in Bermuda and elsewhere, “all because of the inefficient tax structure of the U.S. today,” he said.

If the Trump tax cuts go through, more U.S. companies may be involved in acquisitions, including U.S. companies buying offshore insurers, Mr. Ransom said. “Suddenly, U.S. companies, if you assume a lower tax rate, they could buy Bermuda companies … it levels the playing field,” he said.

While lower corporate taxes may encourage M&A activity, it will not be the main driver, said Jay Gelb, managing director and senior equity analyst at Barclays Capital Inc. in New York.

“I think lowering the corporate tax rate will be a factor in increasing merger and acquisition activity in the insurance industry, but it probably won’t be the driving one,” he said.

For the past two years, mergers and acquisitions have been driven by substantial excess capital, a lack of organic growth opportunities and a deterioration in return on equity prospects for insurers.

Lower taxes “could be one more reason to support additional activity,” Mr. Gelb said.