US: Tariff uncertainty is potentially credit-negative for insurers
Source: Middle East Insurance Review | May 2025
The recent stock and bond market volatility stemming from US tariff changes that wreaked financial havoc globally could pressure insurers’ balance sheets going forward, causing unrealised losses in equity portfolios and diminished capital bases, according to a new AM Best report.
Best’s Commentary, ‘Challenges from Tariff Uncertainty Likely Credit Negative for Insurers’ notes that despite a current 90-day reprieve, there is potential for tariffs to add to inflationary pressures in the future and increase loss costs across several lines of coverage. Rate adequacy concerns could increase for property/casualty companies and lead to insurers requesting higher rates and raising premiums.
Unexpected inflation could weaken reserves
With the potential for tariffs adding to inflationary pressures and increasing loss costs across several lines of coverage, property/casualty insurers would be concerned for rate adequacy. AM Best explained that insurers have financial exposure to public equities (more so for P&C companies), whose decline will lead to reduce balance sheet strength. The report noted that 166 (US) insurers have more than 25% of their assets allocated to equities.
A decline in the 10-year US Treasury rate would lead to diminished investment income, credit spreads have simultaneously widened, which is a signal of potential credit deterioration.
The tariffs situation between the US and China continues to evolve and escalate. “The tariffs will continue to add a great deal of uncertainty to both economies. Equity and bond markets will continue to be highly reactive. Uncertainty surrounding the path and time the tariffs will be in place will determine the impacts on economic growth and inflation,” said the report.
Life and annuity insurers also face the prospect of reduced levels of assets under management and the related fees that are generated, which would impact earnings, in addition to the economic headwinds that potentially could suppress sales. M