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Responding to recent U.S. tax reforms, James River Group Holdings Ltd. has restructured its internal quota share to be ceded to newly formed related counterparty, Carolina Re Ltd.., effective Jan. 1, 2018, the company said in its earnings statement Thursday.
Carolina Re is licensed as a Bermuda Class 3A insurer and reinsurer and will make a 953(d) election to become a U.S. corporate taxpayer, according to the statement.
James River Group added that it does not expect that its third-party casualty reinsurance operations will be affected by the U.S. Tax Cuts and Jobs Act of 2017. The restructuring was made due to changes in U.S. tax law brought about by the TJCA, signed into law on Dec. 22, 2017, the company said in its statement.
The legislation included the introduction of the Base Erosion Anti-Abuse Tax, or BEAT, which establishes a minimum tax on transactions between U.S. corporations and their non-U.S. affiliates, the statement said.
Commenting on the move, Oldwick, New Jersey-based ratings agency A.M. Best Co. Inc. said in a statement Friday that the financial strength rating of A (Excellent) of JRG Reinsurance Co. Ltd., a James River Group unit, and its U.S.-based affiliates remain unchanged following the announcement of the organization’s actions regarding its internal reinsurance structure.
The outlook of these credit ratings remains stable, Best added in its statement.
Best noted James River Group’s reasoning: “A.M. Best’s comment takes into consideration that these steps are in response to the introduction of the Tax Cuts and Jobs Act of 2017,” Best said in its statement. “The comment also takes into consideration that while JRG Re will no longer act as the internal reinsurer, it will continue to write third-party casualty reinsurance.”
As insurers assess how they will be affected by changes to U.S. tax laws passed late last year, some may consider structural changes to their operations or take other steps to comply with changes, experts say.