Is Estate Planning In For A Shakeup?

The Trump presidency has said they would phase out the tax exemption on life insurance interest for high-income earners. This would throw a major wrench into the gears of many existing estate plans.

Some insiders say they’re convinced that Donald Trump’s presidency might provide a healthy spur for the global insurance industry, and shares in several of the segment’s largest firms have shown signs of outperforming the market on the heels of the US election.

Those same sources say the election of the 45th President will also mean the long-term squeeze on returns may be loosening its grip. While the trend of very low interest rates has diminished fixed income returns, the previously-favored business models of insurers meant premiums managed for policyholders were cached in ‘safe’ holdings such as corporate or government bonds.

Michael Siegel, head of global insurance for Goldman Sachs Asset Management, says, “This industry is going to benefit from a gradual rise in interest rates.”

Now a recent rise in bond yields – and the expectation of lessened financial regulation – are impacting industry giants like MetLife and Prudential Financial who find their performance up nearly 18 percent. The largest players say the potential is there for significant gains as financial markets are pumped up by a perceived shift in the US toward a period of fiscal stimulus aimed at bolstering growth which pushes up interest rates.

Tod Nasser, the Senior Vice President of Investment Management for Pacific Life Insurance Company, told the Financial Times he believes the election results will mark a relaxation of recent unease in the market.

Insiders like Nasser say as bond returns climb, insurers will benefit from the fact that pension and annuity products will prove appealing to new consumers. They say life insurers naturally perform at a higher level when interest rates are high and also serve to lead the insurance industry aways from higher-risk asset types.

But some analysts are taking a more wait-and-see attitude.

“You don’t really know which way Trump’s going to go,” says James Shuck, the Head of European insurance equity research at UBS Investment Bank. “You need more certainty for the next leg up. Better reinvestment rates will come through in a very phased fashion.”

It’s estimated that for each single percentage point rise in interest rates, the value of the US property-casualty insurance industry is impacted to the tune of some $50 billion.

Cathy Weatherford, the president and CEO of the Insured Retirement Institute says that Americans saving and preparing for retirement is a top financial concern, and adds that increasing life spans will mark a decline in traditional pension plans. She says the IRI’s agenda calls for “bipartisan policy solutions” aimed at making “retirement plans more widely available, encouraging saving, and increasing access to retirement planning advice and lifetime income strategies.”

According to Weatherford, the IRI is planning to encourage policymakers to act on that set of initiatives to help “enhance retirement security in the United States.”

While some industry wags say Hillary Clinton was viewed as “predictable” in her intent to continue former president Barack Obama’s fiscal policies, Trump, as an “unpredictable” victor in the recent election, will present as yet unknown challenges for the insurance industry.

While health insurance has been the clear focus of legislators following the election, it’s Trump’s promised repeal of the Affordable Care Act (ACA) which has injected an element of uncertainty into the dialog. While Trump and some Republicans are strongly advocating for decreased government regulation – and lower taxes – a number of insurance company executives have come on board as well.

Just days before the November election, CEO of The Hartford, Chris Swift, told an assembled industry audience in Connecticut that “there would probably be tradeoffs in some of the preferences certain industries have enjoyed, including ours.”

Where do you stand on the issue? Let us what you think of President Trump’s tax plan here…

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