AM Best, a credit rating agency focused on the insurance industry, has warned that the planned imposition of a 25% tariff on imports from Canada and Mexico, along with increased tariffs on China, is likely to negatively affect the insurance industry, particularly in the US homeowners’ and auto insurance sectors.
According to AM Best, President Trump’s administration imposed a 25% duty charge on imports from Canada and Mexico on March 4, 2025, with a subsequent announcement of a one-month reprieve for US automakers.
Reports indicate that negotiations for a potential compromise are ongoing. Additionally, tariffs on Chinese imports are set to increase by a further 10% above previously announced levels.
Given that Canada, Mexico, and China are the United States’ largest trading partners, the economic ramifications of these measures could be significant.
AM Best revised its market segment outlook for the US personal auto insurance sector from negative to stable in November 2024, as insurers’ rate increases became more closely aligned with loss-cost trends.
However, any inflationary impact caused by these tariffs could reverse this progress, as the close ties between the US auto industry and Canadian and Mexican suppliers mean that shortages and rising costs for vehicle parts will be reflected in loss-cost trends.
AM Best has emphasised that such developments could have a broader global impact, with the potential for slower economic growth, increased pressure on the insurance sector due to its correlation with GDP, and challenges for emerging economies reliant on trade and foreign investment. Rising uncertainty surrounding supply chains, inflation, investment stability, and underwriting is likely to present additional downside risks.
AM Best has also pointed to the historical precedent of increased material and labour costs following hurricanes, wildfires, and the COVID-19 pandemic, noting that tariffs could exacerbate these pressures for homeowners’ insurers. Essential building materials such as lumber are expected to become more expensive, leading to replacement costs exceeding prior expectations.
Beyond the homeowners’ and auto insurance sectors, AM Best has indicated that life insurers may also face challenges due to heightened market and interest rate volatility, making it more difficult to hedge guarantees on the liability side of their balance sheets.
The asset side of insurers’ balance sheets is also expected to be strained, as rising inflation could negatively affect bond values amid growing fears of a recession.
AM Best continues to monitor the situation, warning that the ongoing trade tensions could have long-term implications for the insurance industry, with loss costs and economic uncertainty weighing heavily on various lines of business.
“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,” added 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.”
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