Commentary from ratings agency AM Best is sounding the alarm that the imposition of tariffs will be a credit negative event for the insurance industry, particularly for homeowners’ insurance and auto insurance providers where replacement costs are expected to increase “beyond expectations.”
Both personal and commercial auto are expected to suffer while trade credit and political risk insurance could also be impacted. Life insurance providers are also expected to feel pressure.
The new note, entitled Prolonged US Tariffs Likely to Weigh on Insurers’ Loss Costs, says life insurers will predominantly be grappling with the increase in overall market and interest rate volatility. “The asset side of the balance sheet will be under pressure as increasing inflation could lead to negative effects on bond values amid increased fears of a recession,” they write. “Much of the impact is uncertain as it will depend on how the US Federal Reserve responds to the economic metric and fiscal policy that accompany the tariffs,” they conclude. “The potential for changing credit conditions (increasing credit spread and default probabilities) could stress life insurers’ balance sheets.”
Higher costs and parts shortages
The personal auto segment in the United States, meanwhile, already downgraded by the agency from stable to negative in November 2024, is expected to be hit by increased costs and parts shortages. Globally, slower economic growth is also likely to pressure the industry, particularly “given the high correlation between a country’s GDP and insurance market growth,” they add.
The note says the researchers anticipate seeing lost-cost spikes for auto and homeowner’s insurance both, with higher cost engineering and electronics in cars costing more to repair and replace going forward, while tariffs are expected to exacerbate home-building supply chain issues already associated with COVID-19, wildfires and hurricanes. “Replacement costs will increase beyond expectations,” they write.
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