Jefferies analysts say Bermuda’s newly enacted tax credit system could significantly reduce the corporate tax burden on the island’s reinsurers/insurers, which could have short-term accounting implications and longer-term implications for earnings forecasts.
For those unaware, the Bermuda Tax Credits Act, enacted on 11 December 2025, introduced tax credits related to wages, local spending and community donations on the island.
While the benefits will be phased in over three years, Jefferies believes they can meaningfully reduce Bermuda corporate taxes, particularly for insurance groups with significant local operations.
The company explained that because the legislation is passed later this year, any gains in 2025 may need to accrue entirely in the fourth quarter, which could have a dramatic impact on fourth-quarter results.
Elsewhere, Jefferies also outlined potential (albeit unlikely) knock-on effects on how insurers value their deferred tax assets (DTAs).
Before the introduction of corporate income tax in Bermuda, loss-making insurance companies would not enter into double tax treaties because there would be no tax to offset those losses.
This changed with the introduction of a 15% corporate income tax in December 2023, effective in fiscal year 2025.
Under the transitional rules, insurers can recognize not only double tax treaties on a prospective basis but also net taxable losses incurred in the five financial years prior to implementation.
Jefferies said that given the heavy losses caused by natural disasters in recent years, many insurance companies have established a large number of double taxation agreements.
Now, however, new tax credits will significantly reduce recurring tax expenditures, extending the time that insurers can take advantage of these double tax treaties.
“As DTAs are recognized at face value without any discount to reflect the time required to use them, this should not trigger an impairment. However, accounting standards do provide (under IAS 12.35) that the value of DTAs should be limited to a level where there is compelling evidence that there will be sufficient profits to offset it,” Jefferies said.
While there is no set time horizon for how far into the future a company can look when assessing recoverability, Jefferies suggests that prudent insurers may limit the amount of their DTAs to the amount expected to be used within management’s formal forecast period.
The company concluded that it believed widespread impairment was unlikely, but flagged the issue as one that management teams and investors may need to monitor as the new credit regime reshapes Bermuda’s effective tax landscape.