Overview
EMEA insurers, while not directly impacted by US tariffs, face considerable exposure to secondary effects, according to Fitch Ratings’ report. Beinsure analyzed the report and highlighted the key points.
These tariffs, along with related geopolitical tensions and retaliatory measures, are expected to slow global economic growth and contribute to financial market volatility.
This will place pressure on insurers’ investment performance and underwriting outcomes.
Tariffs in the single digits aim to transform a supply chain but double-digit tariffs are destructive, intended to replace supply chains. The great majority of goods consist of components from different sources, like autos and homes.
5 key highlights from the analysis:
- EMEA insurers face indirect risk from US tariffs. While not directly impacted, EMEA insurers are vulnerable to second-order effects such as global market volatility and economic slowdown triggered by US trade policy.
- Equity declines, wider credit spreads, and potential defaults could cause mark-to-market losses and weaken solvency ratios, despite stronger European government bond yields.
- Reinsurers and London Market insurers most rxposed. These groups face the greatest risk due to their US-linked operations and dollar-denominated earnings, though the exposure is largely confined to local subsidiaries.
- Tariffs have driven up the cost of vehicles and building materials, increasing claim expenses and reducing profit margins in personal lines like auto and home insurance.
- Rising claims, inflation, and supply chain issues challenge non-life and trade credit insurers. While repricing and cutting credit lines offer some relief, pricing power remains limited.
Most goods include components from multiple countries. The concept of a product being “from” one country no longer applies in many sectors, including autos.
Investment returns for insurers remain highly uncertain
Declines in equity markets, wider credit spreads, and a possible increase in defaults could lead to mark-to-market losses, reducing generally strong solvency ratios.
However, European government bond yields remain higher than they were at the end of 2024, providing a moderate benefit to most insurers, as higher yields improve profitability from premium investments.
Reinsurers and London market insurers are the most directly exposed to potential weaknesses in the US economy, US dollar and US operating conditions out of all EMEA insurers.
However, economies outside the US will also face weaker growth and FX volatility, and we expect EMEA insurers’ operating environments to be adversely affected.
Europe’s major reinsurers are exposed to the US market through their reinsurance coverage and investment portfolios, and their earnings are geared to the dollar.
The exposure is largely contained in local subsidiaries, and cross-border activities are limited, but weaker US performance or a decline in the dollar would negatively affect consolidated results. London market insurers are similarly exposed through their US-focused operations.
US tariffs could affect the insurance sector
J.P. Morgan recently examined how US tariffs could affect the insurance sector. The analysis shows that personal lines insurers, such as those offering auto and home insurance, face higher direct risks than commercial insurers or reinsurers.
Tariffs have raised the costs of auto parts, vehicles, and building materials. These inputs are central to underwriting in personal lines.
Higher repair costs and rising used car prices are expected to narrow their profit margins.
Commercial insurers face different risks and often operate with broader geographic exposure, making them less sensitive to tariff-driven price increases.
Reinsurers also encounter some pressure from rising material costs but remain less directly affected than personal lines carriers.
Auto insurance premiums in the U.S. could rise 14% by the end of 2025 due to new tariffs on imported vehicles and parts.
European life insurers carry significant market risk
Prolonged financial market volatility, a marked economic downturn, or periods of market illiquidity could drive outflows and lead to realized investment losses.
Still, new business volumes for these insurers are unlikely to be heavily affected by tariff-related disruptions unless market and economic conditions deteriorate sharply over an extended period.
Non-life insurers could face lower revenue from lower economic growth. Rising claims costs due to tariffs could lead to higher inflation and supply shortages, particularly for construction materials and motor spare parts.
Business interruption claims may also increase due to supply chain disruption. EMEA non-life insurers’ pricing could fail to keep pace with claims inflation costs as pricing momentum is constrained by macroeconomic weakness, leading to pressure on margins.
EMEA insurers’ exposure to US tariffs
Life insurers appear more insulated from immediate effects
Life insurers appear more insulated from immediate effects, though extended trade tensions may still present challenges.
A downturn in equity markets, interest rate shifts, or foreign exchange volatility could hurt insurers with large equity-linked portfolios.
At the same time, insurers with a focus on interest rate-sensitive lines could benefit if credit spreads widen and yields rise.
Lower trade volumes, rising defaults and supply chain disruption will also affect trade credit insurers, although offset by their ability to quickly reprice and cut credit lines.
Financial guarantors could experience pressure from worsening economic conditions in emerging markets, which may lead to higher demand for guarantees and increased credit losses.
Those guarantors supported or co-guaranteed by the United States Agency for International Development (USAID) could face setbacks if the agency closes, unless they secure alternative funding and new co-guarantors to maintain business volumes.
FAQ
No, but they are significantly exposed to secondary impacts like market volatility and slowing global growth.
Falling equities, widening credit spreads, and rising defaults can trigger losses, but higher bond yields in Europe offer some upside.
Reinsurers and London market insurers with US operations are the most exposed among EMEA firms due to their dollar-linked earnings and investments.
Personal lines insurers, especially in auto and home, face the most direct cost pressures due to higher prices for parts and materials.
Life insurers face market risk but remain relatively shielded unless there’s a prolonged downturn or sharp volatility in financial markets.
Weaker economic growth and inflation push up claims costs, while pricing constraints due to macroeconomic conditions pressure margins.
Guarantors tied to USAID funding could suffer if the agency shuts down, requiring new financial partners to maintain operations.
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AUTHORS: Sabine Bauer – Managing Director, Head of EMEA Insurance Ratings at Fitch Ratings, David Prowse – Senior Director at Fitch Wire
