This report by Milliman consultants summarises the Solvency and Financial Condition Reports of the main players in the life and non-life insurance business in Luxembourg. It focusses on the largest insurance entities in Luxembourg as well as some large reinsurance entities and includes an overview of the factors determining the Solvency Capital Requirement ratio.
In May 2017, the first Solvency and Financial Condition Reports (SFCRs) were published for year-end 2016. The SFCRs contain a significant amount of information, including details of the company’s performance over the reporting period, systems of governance, risk profile, valuation basis and capital requirements. This report by Milliman consultants is a summary of the SFCRs for the main players in the life, non-life and health insurance business in Belgium, focussing on a subset of insurers in the Belgian market.
On 10 October 2017, the new Dutch government Rutte III of the VVD, CDA, D66 and ChristenUnie presented their Coalition Agreement. In ‘Confidence in the future, Government Agreement 2017-2021,’ the government provides an overview of the intended objectives including expected budget.
Two proposals regarding the corporate tax will affect the solvency position of insurers under Solvency II. The first proposal is related to decreasing the corporate tax rate from 25% to 21%. The percentage decreases are in the table below:
||Corporate tax rate
Decreasing the corporate tax rate will have a decreasing effect on the level of Loss Absorbing Capacity of Deferred Tax (LAC DT), resulting in a higher Solvency Capital Requirement (SCR). In addition, the eligible own funds backing the SCR may decrease should an insurer have a Deferred Tax Asset (DTA) on the balance sheet.
The second proposal is related to mitigating the carryforward of taxable losses with future taxable profits. Currently, loss in corporate tax rules can be recovered by profit last year (carryback) and nine years into the future (carryforward). In the Coalition Agreement, the carryforward will be limited to six years. The government expects the first saving to be in 2028. The intended effective date of this rule is currently unknown. Given the first saving in 2028, our expectation is that the rule will commence between 2019 and 2022.
The second measure impacts the level of LAC DT as well. This is due to the opportunity of recovering tax receivables from the loss (SCR) as a result of the 1-in-200-year simultaneous shock with tax liabilities from future profits. Profits between the seventh and ninth years cannot be taken into account.
The same counts for the recovery of a DTA with tax liabilities from future profits. This will be more complicated.
Insurers need to realise these new corporate tax regulations when defining their capital policies and when managing stakeholder expectations on the level of the Solvency II ratio.