U.S. tax reforms set to take effect in 2018 will have both positive and negative consequences for the country’s life insurers, Fitch Ratings says.

The reforms are likely to boost the earnings of life insurers, but could negatively impact their capital positions.

The corporate income tax rate reduction to 21% from 35% could boost U.S. life insurers’ cash flows and earnings, Fitch says in an announcement published on Tuesday, “depending on how much of the tax saving insurers pass to customers through higher crediting rates or lower pricing.”

However, the tax cut will be negative for insurers’ risk-based capital positions, as they will likely face higher capital requirements, “given the reduced tax offset to [capital] charges for credit, market, insurance and operational risk,” Fitch says, and lower deferred tax assets (DTAs).

“The negative impacts on capitalization will be alleviated by an increase in the value of the margins in insurers’ statutory reserves, given the lower tax rate that will now apply when margins are released,” Fitch says. It expects insurers whose capital falls below target levels as a result of the tax changes will plan to rebuild their capital positions over time.

The reforms, “do not affect the tax-advantaged status of life and annuity products — a reduction in these tax advantages could have triggered a material fall in product sales,” Fitch says.