New Commentary Offers Cautionary Statements on Tarriffs
The U.S. insurance industry is bracing for potential economic disruptions following the imposition of a 25% tariff on imports from Canada and Mexico, alongside additional tariff increases on Chinese imports, according to a new commentary from AM Best. The rating agency warns that the tariffs could drive inflationary pressures in the auto and homeowners’ insurance markets, affecting claims costs and underwriting profitability.
“Given the supply chains that the U.S. auto industry has established with Canada and Mexico, any disruptions and inflationary impacts due to the tariffs will be a credit negative for carriers,” said Sridhar Manyem, senior director, AM Best. “The more recent fleets of cars come equipped with advanced engineering and electronics and cost more to repair and replace.”
On March 4, 2025, President Trump implemented the 25% tariffs on imports from Canada and Mexico. The following day, the administration announced a temporary one-month reprieve for U.S. automakers, raising speculation that a compromise might be reached. Meanwhile, tariffs on Chinese imports are set to increase by an additional 10% beyond previously announced levels. Canada, Mexico, and China are the top three trading partners of the United States, making the potential economic repercussions of these measures significant.
AM Best, which revised its outlook on the U.S. personal auto insurance segment to stable from negative in November 2024, cautioned that the new tariffs could reverse some of the industry’s recent progress. The agency noted that rising costs of imported auto parts, due to trade restrictions, could push loss-cost trends upward and weaken insurers’ financial positions.
The fallout from the tariffs extends beyond auto insurance. Homeowners’ insurers are also expected to face rising claims costs, as tariffs increase the price of key building materials, including lumber. AM Best pointed to previous instances of price inflation in construction materials, such as those following hurricanes, wildfires, and the COVID-19 pandemic, as a precedent for what insurers might encounter.
Broader economic concerns are also in play, with AM Best highlighting potential global effects, including slower economic growth, increased investment uncertainty, and heightened underwriting risk. “These measures may also present challenges for emerging economies that are closely tied to trade and foreign investments,” the report stated.
Beyond property and casualty lines, life insurers could face market volatility and interest rate fluctuations, making it more challenging to hedge guarantees on the liability side of their balance sheets. Additionally, rising inflationary pressures could negatively impact the asset side of insurers’ balance sheets, particularly bond portfolios, amid growing fears of a potential recession.
To access the full AM Best commentary, visit http://www3.ambest.com/bestweek/purchase.asp?record_code=351866.
