The imposition of tariffs by the US on imports will impact the global insurance sector, even though insurance companies primarily provide financial services. The direct effects will result from inflationary pressures, while indirect effects may include financial market volatility and weaker economic conditions, Morningstar DBRS said in a note.
Since earlier this month, the US has imposed a 10% tariff on most imports, with higher rates for certain trading partners. These tariffs, aimed at addressing trade imbalances, are expected to increase costs for raw materials and manufactured goods, which could have a direct impact on claims costs for insurers.
Property and casualty insurers in the UK and European Union are expected to be less affected, although the situation could change depending on the evolution of retaliatory tariffs. Auto and property insurance lines may experience higher claims costs due to supply chain disruptions and material shortages in these regions.
Some areas, such as casualty insurance, are not expected to face direct impacts. Policies in political risk and cyber insurance may see some additional losses as a result of heightened geopolitical instability and trade policy uncertainty.
Life and health insurers are not directly affected by the tariffs, but the broader effects of financial market performance and investment sentiment could influence them. Changes in portfolio valuations and shifts in policyholder savings behavior are likely to affect the wealth and asset management sectors, Morningstar said.
The North American economy is expected to be weaker, potentially leading to a larger impact on US life and health insurers compared to their European counterparts, according to the note. At the same time, market volatility could drive demand for guaranteed savings products from risk-averse customers. The sales of life insurance products could slow if investment sentiment declines. If tariffs are eventually imposed on pharmaceuticals, it could increase health insurance claims, the note said, although this remains a potential scenario rather than a current reality.
Reinsurers, particularly those involved in US property markets, are also likely to face inflationary pressures due to tariffs. However, global reinsurers that provide coverage in life and health, as well as other lines like casualty insurance, are expected to be less impacted by the current tariff environment.
"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."
For instance, insurers in the auto and property sectors are expected to raise premiums. In regulated markets, premium increases will require approval from local authorities, while in unregulated markets, insurers are expected to act more quickly.
They may also reduce their reliance on imported materials by adjusting supply chains, the note said. However, these adjustments will take time to implement and could result in delays and higher costs.
The performance of investment portfolios will be an important factor for insurers’ financial outcomes, Morningstar said, adding that it will closely monitor market conditions affecting fixed income, private, and alternative assets.
