AM Best warns prolonged US tariffs would hit insurer loss costs

By Michael Loney

March 6 - (The Insurer) - U.S. President Trump’s imposition of tariffs on Canada, Mexico and China would be a credit negative for the insurance industry if prolonged, especially for homeowners and auto lines.

In a commentary issued Thursday, AM Best said the planned imposition of a 25% tariff on imports from Canada and Mexico, along with increased tariffs on China, will have a negative effect on the insurance industry, particularly for personal and commercial auto insurers.

President Trump imposed a 25% duty charge on imports from Canada and Mexico on March 4, with tariffs on Chinese imports also set to increase by an additional 10% above previously announced levels.

AM Best noted that the Trump administration on Wednesday had announced a one-month reprieve from the tariffs for U.S. automakers, while since the rating agency’s commentary was issued President Trump signed deals to suspend most of the Canada and Mexico tariffs until April 2.

China, Canada and Mexico are the largest trading partners of the U.S. in terms of imports and exports.

AM Best noted that it revised its market segment outlook for the U.S. personal auto segment to stable from negative in November 2024 as personal auto insurers’ rate increases became more closely aligned with loss cost trends.

“Any inflationary impact due to the tariffs imposed on Canada and Mexico, which are closely interconnected with the US auto industry, will be negative in the short term as shortages and increased prices for parts will be reflected in loss-cost trends,” the commentary said.

“This is particularly impactful given the close linkage of personal auto lines,” it added.

AM Best also warned that the tariff dispute may reverberate globally.

Potential impacts include slower economic growth, pressure on the insurance sector given the high correlation between a country’s GDP and insurance market growth, challenges for emerging economies and rising uncertainty surrounding supply chains, inflation impacts, investment uncertainty and underwriting.

“The uncertainty surrounding tariffs is expected to keep the US Federal Reserve in a more restrictive stance, which in turn would affect capital market flows,” the commentary added.

Any disruptions and inflationary impacts due to the tariffs will be a credit negative for carriers, AM Best said, given the supply chains that the U.S. auto industry has established with Canada and Mexico.

“The increase in severity that the insurance industry experienced during the supply chain bottlenecks could be replicated if tariffs continue for a prolonged period,” the commentary said.

Tariffs can also exacerbate the trend seen in recent years for homeowners’ insurers battling higher costs for materials and labour. This is because building materials such as lumber will become more costly and replacement costs will increase beyond expectations, AM Best said.