KBRA Releases Research – Tariffs and Market Volatility: Potential Impacts on Insurance Sector

KBRA releases research examining the impact of the ongoing tariff disputes and related trade tensions, with a focus on emerging credit challenges for the sector. Notably, KBRA observes that the primary, secondary, and tertiary effects will differ significantly based on the specific lines of business underwritten, as well as the strength of an insurer’s capitalization, risk management framework, and liquidity profile. While property and casualty (P&C) insurers—particularly those underwriting personal and commercial auto, homeowners, and property lines—face the primary impact of rising claims costs, all insurers (both life and nonlife) are vulnerable to the secondary effects of investment volatility and the tertiary impacts of shifting consumer behavior. These broader pressures stem from ongoing broader macroeconomic headwinds and the fluctuations in reinsurance availability. Overall, KBRA believes most carriers are well positioned in the near term. However, depending on the duration and severity of market volatility and tariff-related economic trends, insurers with weaker balance sheets and less robust risk management profiles may face heightened credit pressures over the medium to long term.

Key Takeaways

• Tariffs are expected to drive up claims costs for P&C insurers, especially in property and auto lines. These pressures could be exacerbated by regulatory pricing inertia, which can delay or even preclude insurers from passing increased costs on to policyholders. Macroeconomic stress will also impact consumer financial decisions and modify spending and behavior patterns.
• Investment volatility and corporate credit deterioration related to economic slowdown—or even recession—may pressure liquidity and capital adequacy. However, most insurer portfolios are of high quality and sufficiently diversified to withstand significant market dislocation. In addition, recent increased allocations to private credit may help to further insulate asset portfolio risk profiles through increased diversification, robust structural protections, and less volatile credit exposure.
• Weaker insurers with thin risk management and capital buffers could face credit deterioration risks over time, while reinsurance may become less available and more expensive. Across its rated universe, KBRA will continue to engage with management teams to identify potential areas of vulnerability.

Click here to view the report.

About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

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