Property casualty (PC) insurers face cost inflation in personal auto and homeowners’ lines from tariffs. Other watch items include increased severity of claims pressuring margins, and the effect of market volatility and potential losses on equity portfolios
New York/Chicago: U.S. insurers, although not directly affected by tariffs, are significantly exposed to second-order effects of market volatility and cost inflation, Fitch Ratings says. Credit trends for U.S. insurers are likely to be pressured in 2025 as the outlook for trade, economic growth and inflation worsens.
A global trade war and resulting uncertainty across capital markets have introduced additional headwinds for U.S. insurers. Weakening global growth will pressure insurers’ investment and underwriting results as volatile equity prices, widening credit spreads and rising defaults may lead to mark-to-market losses.
Property casualty (PC) insurers face cost inflation in personal auto and homeowners’ lines from tariffs.
“We are monitoring the inflationary effects on loss costs, reserve adequacy and margins if tariffs cause loss costs to exceed rate increases,” said Fitch.
Other watch items include increased severity of claims pressuring margins, and the effect of market volatility and potential losses on equity portfolios.
Prolonged financial market volatility, a significant economic downturn or bouts of market illiquidity could eventually lead to meaningful outflows and investment losses for life insurers. Rated insurers also have significant balance sheet exposure to investment losses primarily from their investment portfolios, which have become increasingly focused on private credit and other more illiquid asset classes.
However, life insurer balance sheets are strong, with excess capital to absorb losses. We view the current market stress as near-term headwinds for sales and earnings but not a capital event for insurers.
The operations of U.S. health insurers are largely domestic, with relatively modest short-term effect from tariffs, which could ramp up depending on the evolution and duration of tariffs. If material tariffs are introduced on pharmaceutical imports, insurers may face higher prescription medical expenses. A prolonged or particularly severe recession that significantly reduces U.S. housing demand would pressure title and mortgage insurance margins.