Donald Trump’s election as US President has caused chaos and uncertainty in global political circles as he has begun to dismantle treaties and cast doubt on long-held international alliances. The global reinsurance markets are also poised for potentially massive disruption if Trump follows through on his election pledges.
Trump’s relationship to reality is problematic – to put it mildly – but assuming he does do what he promised to during the campaign then the ramifications for the industry could be seismic.
The big picture
In broad terms, Trump has vowed to stimulate the US economy by slashing corporation tax and embarking on a massive programme of infrastructure rebuilding. Should the economy lift off as a result, there will be a massive spike in demand for all sorts of insurance cover, which has made many in the industry bullish about the new president, according to Carrier Management.
Last Friday, Trump signed an Executive Order directing regulators to scale back the Dodd-Frank rules governing banking regulation. Dodd-Frank was put in place after the 2008 financial crisis and was designed to prevent another meltdown in the financial services sector. Banks will certainly welcome less regulation, which should spur economic activity.
Trump has signalled his opposition to multi-lateral trade deals by pulling out of the 12-nation Trans-Pacific Partnership. He is in favour of replacing these with trade deals with individual nations. The impact of these on the American economy remains to be seen, but it will undoubtedly disrupt established norms of international trade. Will individual deals stimulate trade with the US – as UK Prime Minister Theresa May seems to think likely – or will the collapse of trading arrangements between Washington and the European Union and other blocs be a massive dampener on economic activity?
In general terms, one thing that businesses do not like is uncertainty, and Trump’s actions in his first weeks in office have caused chaos on a truly global scale. Almost everything is uncertain, so by that measure Trump would seem to be bad for business and therefore the insurance industry.
What’s next after Obamacare?
Trump has pledged to rip up Obamacare and claimed he is replacing it with “insurance for everyone” and said he will submit a proposal once his nominee for Department of Health and Human Services is confirmed . As with much of Trump’s initiatives, no one seems to have a clue what is going on. Republican Senator Orrin Hatch, a key player in plans to dismantle the Affordable Care Act, said he didn’t think Trump was working on a separate Obamacare plan. “I don’t know what they have in mind other than they know it isn’t going to work,” he says. What this means for the US health insurance industry is anyone’s guess.
Bermuda in the firing line
Fitch Ratings has warned that Trump could have major implications for the Bermuda re/insurance market. The ‘America first’ attitude of Trump combined with a lower US corporate tax rate “could reduce Bermuda’s market benefits,” said Fitch. Trump is not shy about bullying major corporations in public, and it is possible large US insurers and reinsurers which have Bermuda holding companies may feel under pressure to redomicile to the United States.
House Speaker Paul Ryan, a key Trump ally, has strong views on tax which could have dramatic implications for Bermuda’s re/insurance industry. In his book ‘A Better Way, he wrote: “products, services and intangibles that are exported outside the United States will not be subject to US tax regardless of where they are produced.
It also means that products, services and intangibles that are imported into the United States will be subject to US tax regardless of where they are produced. This will eliminate the incentives created by our current tax system to move or locate operations outside the United States.” Bermuda’s largest export is reinsurance and its largest trading partner is the U.S, so the potential ramifications are enormous.
Relax – at least he’s abolishing hurricanes and cyber crime
With all matters Trump, nothing is certain, and some in the industry are turning to humour,. On Twitter last week some are joking that The Donald has banned hurricanes and cyber attacks..
Now that really could have big implications for the industry.
