The on-again, off-again planned imposition of a 25 per cent tariff on imports from Canada and Mexico, along with increased tariffs on China, would have a negative effect on the insurance industry and more specifically impact the US homeowners and auto lines of business, according to a new AM Best commentary.

Today, the US administration changed course again and said the Mexico tariffs were to be delayed a month to allow for bilateral talks.

US president Donald Trump had imposed a 25 per cent duty charge on imports from Canada and Mexico on March 4.

A day later his administration announced a one-month reprieve from the tariffs for US automakers, with some reports suggesting that a compromise agreement might be in the offing.

Tariffs on Chinese imports are set to increase by an additional 10 per cent above those previously announced.

The three countries are the largest trading partners of the United States in terms of imports and exports.

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

The agency said: “Any inflationary impact due to the tariffs imposed on Canada and Mexico, which are closely interconnected with the US auto industry, will be negative as shortages and increased prices for parts will be reflected in loss-cost trends. This is particularly impactful given the close linkage of personal auto lines.”

“Given the supply chains that the US auto industry has established with Canada and Mexico, any disruptions and inflationary impacts due to the tariffs will be a credit negative for carriers,” said Sridhar Manyem, senior director, AM Best.

“The more recent fleets of cars come equipped with advanced engineering and electronics and cost more to repair and replace.”

While the tariff dispute is focused on the US measures and countermeasures by Canada, Mexico and China, its impact may reverberate globally.

Best said: “Potential impacts include slower economic growth, pressure on the insurance sector given the high correlation between a country’s GDP, and insurance market growth.

“These measures may also present challenges for emerging economies that are closely tied to trade and foreign investments, and rising uncertainty surrounding supply chains, inflation impacts, investment uncertainty and underwriting, which most likely would tilt toward the downside.”

Best also said:

• Life insurers will be affected because of the increase in overall market volatility and interest-rate volatility as it will be a challenge to hedge guarantees on the liability side of the balance sheet

• The asset side of insurers’ balance sheets will be under pressure as increasing inflation could lead to negative effects on bond values amid increased fears of a recession