**London**: A new AM Best report highlights that insurance companies could suffer financially from stock and bond market volatility linked to tariffs, potentially leading to decreased demand for insurance services and increased liabilities for corporate directors amid economic uncertainties.
The financial stability of insurance companies is facing potential strain due to stock and bond market volatility attributable to recent tariffs, according to a report by AM Best, a prominent insurance industry financial strength rating agency. The agency has assessed that the ongoing uncertainties surrounding tariffs could be “credit negative” for insurers, although it has not yet taken any actions regarding credit ratings.
AM Best’s scrutiny of the equity and bond markets before a 90-day pause on proposed tariffs has provided insights into how these factors may affect insurers’ balance sheets. Sridhar Manyem, senior director at AM Best, noted that “insurance companies have financial exposure to public equities—more so for P/C companies—whose decline will lead to unrealized losses and ultimately, declines in capital.” He pointed out that there are 166 property and casualty (P/C) insurers with over 25% of their assets allocated to equities, highlighting the significant financial risk they face.
The impact of tariffs could lead to inflationary pressures that may weaken reserves due to unanticipated increases in loss costs across various lines of coverage, including trade credit, political risk, marine, and supply chain insurance. The demand for contingent business interruption insurance and supply chain coverage has surged in response to significant disruptive events, such as the Thailand floods in 2011 and the COVID-19 pandemic. The introduction of tariffs may exacerbate these disruptions, resulting in higher prices, reduced production capacities, and heightened risks of insolvency within the global supply chain.
In its analysis, AM Best anticipates that an economic downturn affecting international trade could lead to decreased demand for insurance services. The agency is currently in discussions with rated insurers to better understand the impacts of these tariff-related challenges and how they might respond. “AM Best is assessing how the impact of tariffs flows through to financial statements, in particular the impact of market volatility or stress on insurance company balance sheets,” said AM Best in a special report entitled “Challenges From Tariff Uncertainty Likely Credit Negative for Insurers.”
In addition to the implications for personal and commercial property and automobile insurance, the report suggests that directors and officers of corporations may face increased liabilities as they navigate the complexities introduced by tariffs. Furthermore, the anticipated rise in medical inflation is expected to negatively impact workers’ compensation carriers, compounding the challenges faced by the insurance industry in the current economic climate.
Source: Noah Wire Services
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