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Short Term Impact of Tax Reform May Be Bad for ERISA Disability Insurance Claims

Tuesday, January 2nd, 2018

At first glance, a lowered corporate tax rate would seem to be a boon to large insurance companies. Experts expect that it will, in the long-term, but in the short term, there will be some belt-tightening to occur, and we predict that ERISA disability claimants will be the ones to feel the pinch first.

As reported by Yahoo Finance in “Insurers to Endure a Hitch Before Tax Reform Gains, the initial impact of tax reduction in the insurance sector will be in the form of a write-down in deferred tax assets (DTAs). This is also likely to a take a hit at insurance company’s risk-based capitalization levels. DTAs arise when an insurer records an asset equal to the expected future amount of the tax deduction, because of the requirement to discount loss and unearned premium reserves.

Rating agency Standard & Poor’s estimates that its rated U.S. life insurers had about $35 billion of DTA on their statutory balance sheets as of Sep 30, 2017.

The new tax bill requires some insurers to write down DTAs to align their balance sheets to the new tax regime.

Per the S&P, the reform will lead to an aggregate write-down of about $14 billion of life insurers’ DTA, representing 4% of statutory capital. Consequently, this will hit the capitalization levels of some insurers. Deterioration in Risk Based Capital at regulated subsidiaries would also impact subsidiaries’ ability to pass on dividend capital to the holding company.

What might this mean for you, the disability insurance claimant? We tend to be cynical, but we think that whenever an event causes an insurer to lose significant sources of money, or the use of the money, they will tend to seek to recover some or all of that money (through the fairly discrete ways it can). One of these ways is through claim “recoveries” – which some might argue means termination of ongoing claims.

For now, we are advising clients to continue to be vigilant about filing claims for disability benefits and preserving your claim if it is ongoing. However, if you are concerned that your disability insurance claim may be challenged, call our office today at 877-LTD-CLAIM (877-583-2324) and find out how we help.

If your LTD claim has been denied and you want to pursue an appeal, we strongly suggest contacting our office to learn how we can assist you during the appeals process. You don’t want to do this alone, and you don’t have to.

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Frankel & Newfield does not currently handle any Social Security Disability Insurance claims.

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