Twelve Securis anticipates that the insurance industry will largely remain insulated from the recent increases in US tariffs. However, it acknowledges that there may be indirect repercussions that need to be considered. Unlike sectors such as manufacturing, agriculture, and consumer goods—where tariffs have a direct and visible impact—the insurance sector is predominantly driven by underwriting risk and investment management.
Due to its primarily domestic operations, insurers are more significantly influenced by factors such as interest rates, regulatory environments, and consumer demand rather than global trade policies. Nevertheless, Twelve Securis recognizes the potential for secondary effects that could emerge from these changes.
For instance, the European property and casualty market has already experienced inflationary pressures due to supply chain disruptions that followed the COVID-19 pandemic and the ongoing conflict in Ukraine. According to Twelve Securis, insurers operating in this segment have mostly managed to counteract claims inflation—prompted by escalating costs of building materials and spare parts—by transferring these increased costs to policyholders in the form of higher premiums.
Furthermore, if proposed tariffs on auto imports diminish demand in the US, Twelve Securis points out that the surplus of vehicles could be redirected to other markets, potentially lowering replacement part costs for European insurers and alleviating claims inflation. Conversely, there is a warning that US personal lines insurers might encounter elevated costs, as a considerable portion of auto parts and essential construction materials like lumber is sourced from Mexico and Canada.
Beyond the direct impacts on specific sectors, Twelve Securis emphasizes broader risks that could affect insurers’ investment portfolios, particularly through foreign exchange fluctuations and market volatility. However, the firm highlights that most insurers maintain a limited exposure to unhedged foreign exchange risks and have closely aligned their assets and liabilities, which helps mitigate potential financial vulnerabilities.
Moreover, economic uncertainty could have an influence on consumer behavior. Twelve Securis notes that a slowdown in consumer spending might adversely impact new sales of life insurance products. While these products have recently benefited from higher interest rates, they also face stiff competition from government bonds and bank deposits. A potential economic downturn, coupled with a decrease in interest rates, could diminish their appeal to consumers.
Additionally, the company points out that shifts in trade policy and significant tariff increases could impact trade finance, introducing risks for trade credit insurers. Given that these insurers’ revenues are closely linked to the volume of insured trade, Twelve Securis warns that a rise in bankruptcies and defaults—especially among smaller firms within supply chains—might escalate costs and financial strain for these insurers.
Despite these considerations, Twelve Securis remains confident that the insurance sector is well-equipped to navigate the challenges posed by changing trade policies. With a strong domestic focus and well-structured investment strategies, the firm views insurers as a defensive option in an increasingly unpredictable economic landscape.
Source: Reinsurance News
