Best’s Special Report: Challenges From Tariff Uncertainty Likely Credit Negative for Insurers

The recent stock and bond market volatility stemming from U.S. tariff changes that wreaked financial havoc globally could pressure insurers’ balance sheets going forward, causing unrealized losses in equity portfolios and diminished capital bases, according to a new AM Best report.

The 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 (P/C) companies and lead to insurers requesting higher rates and raising premiums.

Life/annuity insurers also face the prospect of reduced levels of assets under management (AUM) 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.

The factors that AM Best is considering include the following:

• How the impact of tariffs flow through to financial statements, in particular the impact of market volatility or stress to insurance company balance sheets.
• Reserve developments and whether they are caused due to unexpected inflationary impacts from these tariffs.
• Any impacts to certain lines of business such as global trade credit as a result of increased economic and political stress.

While the proposed tariffs have been paused for 90 days, the reaction from both the equity and bond markets was clearly evident. AM Best anticipates the possibility of a similar reaction in 90 days, should the tariffs be re-implemented.

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

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=353014.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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