Tariff pressures mount for US insurers, says KBRA

KBRA, a US-based credit rating agency, notes that while the US insurance industry has historically been resilient in the face of economic uncertainty, ongoing tariff disputes and broader trade tensions are now presenting a more complex and layered set of credit challenges.

These pressures are being felt most acutely in the property and casualty (P&C) segment, where rising claims costs—driven by higher prices on imported materials such as steel, aluminum, lumber, and auto parts—are pushing up the cost of repairs and replacements.

KBRA highlights that this is especially significant in personal and commercial auto, homeowners, and property lines, where post-pandemic supply chain strain is still easing. Following natural disasters, demand surges can further inflate rebuilding costs, creating even more pressure on insurers’ margins.

These rising costs don’t always translate into higher premiums in a timely manner. Regulatory delays in approving rate increases—especially in certain US states—can leave insurers with compressed underwriting margins, even as they face persistently higher expenses.

For insurers with less robust balance sheets, this lag can strain profitability and limit the ability to maintain healthy capital buffers. KBRA points out that if inflation accelerates or tariffs persist over the medium term, insurers without sufficient pricing flexibility may struggle to keep pace.

In parallel, policyholder behaviour is beginning to shift in response to broader economic uncertainty. KBRA notes that during times of financial stress, policyholders may reduce coverage, delay renewals, or forgo insurance altogether—particularly in auto and homeowners lines.

Conversely, life and annuity writers may experience a short-term benefit, as market volatility has historically triggered a movement toward more stable, guaranteed products. In that respect, annuity sales may see temporary support from a flight-to-safety mindset among consumers.

On the investment side, most insurers maintain exposure to high-quality fixed income assets, which offers some protection in stable market conditions.

Still, KBRA underscores the risk of credit deterioration should economic growth weaken or enter a recessionary phase. Equity market swings, bond repricing, and inflation can all introduce short-term stress to insurer earnings, especially when combined with increased costs to service life, annuity, and reinsurance contracts.

Notably, KBRA identifies the growing allocation to private credit as a net positive for the sector, offering added diversification, cash flow, and improved structural protections that can cushion balance sheets.

However, reinsurance capacity presents a growing concern. The knock-on effects of tariff-driven inflation are beginning to appear in the form of higher attachment points, stricter terms, and premium increases across reinsurance renewals.

KBRA notes that if reinsurer balance sheets come under pressure from claims inflation or volatile investment markets, availability could tighten further—leaving insurers with greater retention risk and capital strain. Life and annuity insurers with cross-border reinsurance arrangements may also be affected if trade tensions disrupt these flows, or if a weaker dollar diminishes the appeal of US-denominated products abroad.

Ultimately, KBRA emphasises that not all insurers are equally exposed. Those with strong capitalisation, sound liquidity, and robust enterprise risk management frameworks are better positioned to navigate this environment.

On the other hand, carriers with thinner margins, less developed asset-liability management practices, or constrained pricing power may face sustained credit pressure if macroeconomic trends persist or worsen.

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