Changes in US “tariffs” could significantly affect the financial stability of insurance companies
Despite a 90-day reprieve from Trump, recent stock market volatility caused by changes in US tariff policy could significantly affect the financial stability of insurance companies. According to AM Best, this could lead to unrealized losses in equity portfolios and a reduction in capital.
AM Best indicates that the tariffs could increase inflationary pressures in the future and increase loss expenses for various types of insurance.
The US has already imposed effective tariffs of 145% on imports from China (they plan to increase them to 245%), while China has responded with tariffs of 125% on US goods.
The agency emphasized that the tariff situation creates significant uncertainty for both economies. Financial markets are expected to remain sensitive to developments, and further rate policy moves and their timing will impact inflation and economic growth.
Property and casualty insurers may face an increased risk of rate inadequacy. This could force them to approach regulators to ask for higher premiums. Life and annuity insurers may also experience a decline in assets under management, which would impact commission income, while economic headwinds could limit sales.
AM Best analysts are consulting with companies to understand how the rates are affecting their operations and what measures they are taking to respond. While there are no rating changes, the agency believes the impact of the rates is negative from a credit risk perspective and could result in a rating review in the future, depending on the circumstances of each company.
Although the rates have been temporarily suspended, AM Best has already seen a significant reaction from financial markets. The report also notes that a similar reaction is likely to continue if rates are reinstated after the 90-day period.
Sridhar Maniyam, senior director at AM Best, said that insurers have financial exposure to public equities, especially in the property and casualty insurance sector. He said a stock market decline would lead to unrealized losses and capital depletion. Currently, 166 companies in the sector have more than 25% of their assets invested in equities.