According to AM Best, the balance sheets of insurers can be pressured by the stock and bond market volatility caused by recent tariffs, resulting in financial exposure that could lead to some changes in credit ratings.
The industry financial strength rating agency called the impact from the tariffs “credit negative,” but it has yet to take any actions on insurers. Its observations of the equity and bond markets before the 90-day pause of proposed tariffs allowed it to assess exposure to public equities.
“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, of a scenario in which the tariffs outlined on April 2 are implemented again. “There are 166 P/C insurers that have more than 25% of their assets allocated to equities.”
AM Best said the Trump administration’s tariffs could lead to inflationary pressures that may cause reserves to weaken from unexpected increases in loss costs for several lines of coverage such as trade credit, political risk, marine, and supply chain. Contingent business interruption and supply chain insurance have increased in demand following events such as the Thailand floods in 2011 and the COVID-19 pandemic, and tariffs “have the potential to disrupt the global supply chain due to higher prices, decreases in production, and insolvencies.”
Related: Insurance Industry Contemplates Knock-On Effect of Tariffs to Claims, Consumers
AM Best also looked ahead to contemplate an economic downturn that affects international trade, which could lead to “a somewhat reduced demand for insurance.”
The agency said its analytics team is currently speaking with rated insurers to assess impacts and responses.
“AM Best is assessing how the impact of tariffs flows through to financial statements, in particular the impact of market volatility or stress on insurance company balance sheets,” the rating agency said in a special report, “Challenges From Tariff Uncertainty Likely Credit Negative for Insurers.”
Other than impacts to personal and commercial property and auto lines, AM Best said directors and officers in the near term face heightened liability as company leaders decide how to navigate the tariffs. In addition, medical inflation would negatively impact workers compensation carriers.
Photo: Image generated by AI, Adobe Stock
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