US tariffs on leading trade partners are expected to create more uncertainty for insurers, increase insured losses and weigh on ratings, according to AM Best.

Tariffs could make building materials more expensive and push replacement costs beyond expected levels. They may be a credit negative for the industry, especially home, and personal and commercial motor insurers, with potential to also affect trade credit and political risk insurance.

President Donald Trump imposed a 25% duty on imports from Canada and Mexico on March 4, and tariffs on Chinese imports are to increase by 10%. The three countries are the States’ largest trading partners.

Any inflationary impact from the tariffs on Canada and Mexico “will be negative in the short term as shortages and increased prices for parts will be reflected in loss-cost trends”, the ratings agency says.  

“As the flow of goods, services and commerce is disrupted, trade credit insurance and political risk insurance may be triggered because of instability – for example, solvency and sales issues due to pricing and availability – and could result in an unwillingness to pay or provide goods or services.”

AM Best says the tariffs “may reverberate globally”. Potential impacts include slower economic growth, uncertainty around supply chains, inflation, investment uncertainty and underwriting that “most likely would tilt toward the downside”.  

“Any disruptions and inflationary impacts due to the tariffs will be a credit negative for carriers,” it said. 

AM Best says an increase in severity the insurance industry experienced during recent supply chain bottlenecks could be repeated if tariffs continue for a prolonged period.  

“The Trump administration has also hinted at tariffs that might extend to auto manufacturers within the European Union, further driving up costs.”

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