The budget proposal released Monday by the Obama administration could generate $15 billion in additional revenues for the U.S. government from the life insurance industry over 10 years if enacted, UBS Investment Research says.
A positive for the indust ry could come from the proposed increase in tax rates for upper-income Americans, "which could help demand for tax-advantaged policies," according to a note to investors by Andrew Kligerman, an analyst for UBS, New York.
Kligerman says an administration budget proposal to limit tax avoidance on life settlement arrangements would hurt life settlement firms, but he believes that strikes a positive note for life insurers' policy margins, which are partly supported by lapse rates.
Also on the upbeat side for the life business is that the budget promotes retirement savings, such as through a proposed tax credit for small employers adopting qualified retirement plans, Kligerman says.
The insurers Kligerman covers include Prudential, MetLife, Hartford Insurance Group, the Principal Financial Group, Manulife and Lincoln Life.
One potential concern for insurers is the proposed bank tax, which would also apply to insurers with assets of more than $50 billion that own a bank. That proposal would impose a 0.15% tax on the liabilities of these large financial institutions.
The budget proposal also calls for tightened rules on so-called dividend-received deductions, which would apply to annuities and universal life policies, and on corporate-owned life insurance.
The DRD provision would raise $4.3 billion in revenue over 10 years, while the COLI proposal would raise $7.8 billion in revenue over 10 years.
But the COLI provision would largely would be borne by future policyholders, Kligerman said. Moreover, the proposal to remove the tax arbitrage of certain COLI policies would affect only a small part of the life insurance sales of the 11 insurance companies UBS covers, he added.
[An earlier version of this article misstated that UBS predicted the tax proposal could generate $15 billion in additional revenues for the life insurance industry.]
