Tariff-driven market swings could undermine insurer capital bases: AM Best

Despite a current 90-day reprieve, the recent stock and bond market volatility stemming from U.S. tariff changes could pressure insurers’ balance sheets going forward, causing unrealised losses in equity portfolios and diminished capital bases, according to AM Best.

In a new report, the rating agency has suggested that there is potential for tariffs to add to inflationary pressures in the future, and increase loss costs across several lines of coverage.

“The tariff situation between the US and China continues to evolve and escalate. As of the writing of this report, China has imposed a tariff of 125% on US imports, while the US has imposed an effective tariff of 145% on Chinese goods,” AM Best explained.

The rating agency continued, “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.”

As per AM Best’s report, rate adequacy concerns could increase for property and casualty companies and lead to insurers requesting higher rates and raising premiums.

Meanwhile, Life and annuity insurers could 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.

“AM Best analytical teams are speaking with rated companies to gauge the impact of tariffs and their respective responses. While no immediate rating actions have been taken, the impact from tariffs is likely a credit negative for insurers and could lead to changes in credit ratings depending on individual company situations,” AM Best added.

While the proposed tariffs have been paused for 90 days, the rating agency has suggested that the reaction from both the equity and bond markets was evident.

AM Best has additionally anticipated the possibility of a similar reaction in 90 days, should the tariffs be re-implemented.

Sridhar Manyem, senior director, AM Best, said, “Insurance companies have financial exposure to public equities — more so for property and casualty companies—whose decline will lead to unrealized losses and ultimately, declines in capital. There are 166 property and casualty insurers that have more than 25% of their assets allocated to equities.

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