A planned 25% tariff on imports from Canada and Mexico, along with additional tariff increases on goods from China, is expected to affect the US insurance industry, particularly the homeowners and auto segments, according to commentary from AM Best.
On March 4, President Donald Trump imposed a 25% duty on imports from Canada and Mexico. The following day, the administration announced a one-month delay on the tariffs for US automakers, with reports indicating that negotiations for a possible compromise may be under consideration.
In addition to these measures, tariffs on Chinese imports are set to rise by an additional 10% beyond previously announced levels. Canada, Mexico and China are the United States’ largest trading partners in terms of imports and exports.
In November 2024, AM Best revised its market segment outlook for the US personal auto insurance sector from negative to stable, citing a closer alignment between personal auto insurers’ rate increases and loss-cost trends.
However, the commentary highlighted that inflationary pressures resulting from the new tariffs could negatively affect loss-cost trends in the personal auto market, particularly given the interconnected supply chains between the US auto industry and manufacturers in Canada and Mexico.
During his first term, Trump implemented several tariffs targeting various countries.
In 2018, the administration imposed tariffs on steel and aluminum imports from countries including China, Canada, Mexico, and the European Union. This led to retaliatory measures from affected nations, resulting in heightened global trade tensions.
Sridhar Manyem, senior director at AM Best, said the supply chain relationships between the US auto industry and Canada and Mexico make any tariff-related disruptions and inflationary pressures a credit negative for insurers.
Manyem said that newer vehicle models equipped with advanced technology and electronics have higher repair and replacement costs, which could further amplify these trends.
Although the commentary focused on the US, it noted that the effects of the tariff actions and any countermeasures taken by Canada, Mexico and China could have broader global implications.
Potential impacts include slower economic growth and increased pressure on the insurance industry, given the strong correlation between economic performance and insurance market growth.
The commentary also cited possible challenges for emerging economies that are closely linked to trade and foreign investment, as well as increased uncertainty related to supply chains, inflation, investment returns and underwriting outcomes.
The report noted that recent years have already seen elevated costs for materials and labor in the aftermath of hurricanes, wildfires and the COVID-19 pandemic. The imposition of tariffs could further increase costs for homeowners insurers as building materials, including lumber, become more expensive, leading to higher-than-expected replacement costs.
AM Best also indicated that life insurers may face challenges due to increased market and interest rate volatility, which could complicate efforts to hedge guarantees on the liability side of their balance sheets.
On the asset side, higher inflation could exert downward pressure on bond values, particularly if concerns about a potential recession increase.
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