From U.S. Trade Policy to Global Insurance Policies: Where Does It Matter and How Will Insurance Companies Respond?

Although insurance companies primarily engage in the provision of financial services, the imposition of tariffs by the U.S. on many goods imports will adversely impact the global insurers' business and operating environment. The direct impact will stem from tariff-induced inflationary pressures. Financial market volatility and potentially weaker economic conditions could have indirect effects.

We expect North American insurers that sell auto and property insurance policies to be the most directly and highly affected because of the ensuing claims cost pressures related to car prices, cost of car repairs, and expenses associated with property rebuilding materials. Life and health insurers in the UK and EU are, in our view, relatively less affected under the current tariff environment. Uncertainty around the direction of U.S. trade policy and the likely responses from U.S. trading partners present risks to our assessments.

"Despite these large trade and market disruptions, we believe that the impact on most well-diversified insurance companies is manageable," said Nadja Dreff, Senior Vice President, Sector Lead Global Insurance & Pension Ratings, Morningstar DBRS. "We expect insurers will take mitigating actions in the form of premium increases, adjustments to supply chains, tighter control of expenses, and potential investment portfolio reallocations."

Key highlights from this commentary include:

-- The U.S. trade policy impact on insurers stems from tariff-induced claims cost pressures as well as financial market volatility weighing on investment sentiment.
-- We believe that the most significant impact will be on the U.S. and Canadian insurers that offer auto and property insurance.
-- Some lines of business, such as the casualty (liability) subsector or guaranteed savings products, are not immediately affected by the tariffs.
-- The mitigating action that auto and property insurers will take in anticipation of higher claims is to increase premiums.