Some of the largest North American insurers recorded significant impacts on their fourth-quarter 2017 earnings due to tax reforms passed in the U.S., according to an analysis by S&P Global Market Intelligence.
The enactment of the Tax Cuts and Jobs Act on Dec. 22, 2017, reduced the corporate income tax rate to 21% from 35%. While the lower rate is expected to benefit companies' profits in the future, its impact on their fourth-quarter earnings has been mixed. Insurers with a net deferred tax asset on their balance sheets took a one-time charge after revaluing those assets at the lower 21% tax rate. For companies that carried a net deferred tax liability position, the revaluation resulted in a tax benefit, which bumped up their quarterly earnings.
Some insurers, such as Sun Life Financial Inc., also said they will take charges related to the repatriation of foreign earnings, another component of the tax reform package.
Manulife Financial Corp., which operates with the John Hancock brand in the U.S., revised its estimated charge of C$1.9 billion on its fourth-quarter earnings to C$1.8 billion. The insurer attributed the hit to tax reform's impacts on policyholder liabilities, deferred tax assets and the tax deductibility of reserves. However, the tax change will benefit net income and core earnings by about C$240 million every year starting in 2018, the company said.
The Hartford Financial Services Group Inc. reported a charge of $877 million in its fourth-quarter earnings due to the dilution of its net deferred tax assets, as the company previously disclosed.
American International Group Inc. may have taken the largest charge among the insurers, at about $6.7 billion. AIG CFO Siddhartha Sankaran attributed the charge to a remeasuring of U.S. net operating losses and deferred tax assets at the new statutory tax rate of 21% in a recent earnings call.
On the other hand, Prudential Financial Inc. reported a tax benefit of $2.87 billion for the quarter, resulting from the revaluing of net deferred tax liabilities and the adoption of a territorial tax system.

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