Although a 90-day pause is currently in place, recent fluctuations in stock and bond markets caused by changes in U.S. tariffs may continue to strain insurers’ financial positions.
According to AM Best, this pressure could result in unrealized losses in equity holdings and a reduction in capital.
In a new report, AM Best noted that tariffs may drive future inflation, raising loss costs across various lines of insurance.
As of the report’s release, the U.S. had implemented tariffs amounting to 145% on Chinese imports, while China had set tariffs of 125% on goods from the U.S.
The agency stated that the ongoing developments contribute significant uncertainty to both countries’ economies. This uncertainty is expected to keep financial markets reactive, with the duration and direction of tariff policy playing a key role in determining impacts on inflation and growth.
Property and casualty insurers may face increasing pressure related to rate adequacy. This could lead to requests for premium increases as companies seek to offset rising costs.
At the same time, life and annuity insurers may encounter declining asset levels under management, which would reduce associated fee income and potentially affect earnings. Broader economic challenges may also weaken demand for these products.
AM Best reported that its analysts are engaging with rated insurers to assess tariff-related risks and company responses.
While no changes to credit ratings have occurred so far, the agency indicated that the overall effect of the tariffs is likely negative and could eventually lead to rating adjustments based on individual circumstances.
Although tariffs are currently suspended, AM Best emphasized that market responses have already reflected the potential consequences. The agency also noted the likelihood of a similar market reaction if tariffs are reinstated after the 90-day period.
Sridhar Manyem, senior director at AM Best, explained that property and casualty insurers face particular exposure due to their public equity holdings. He stated that equity declines would result in unrealized losses and reduced capital, adding that 166 such insurers have allocated more than 25% of their assets to equities.
