While tariff-induced inflationary factors impacting property insurance are expected to affect property reinsurance as well, Morningstar DBRS analysts have suggested reinsurers will only see a mild impact due to their diverse global operations and exposure to non-property lines like life and casualty reinsurance.
In a new report focused on U.S. trade policy, the firm’s analysts explained that reinsurance is a global market, even though the largest market players are primarily domiciled in Europe and Bermuda.
With this in mind, Morningstar DBRS observed that most of the tariff-induced inflationary factors that affect property insurance will also impact property reinsurance.
Given these factors, Morningstar DBRS analysts noted that while U.S. property risks would see the largest impact from tariff-induced inflation, global reinsurers are expected to experience only a mild effect overall.
This is because many of these reinsurers also offer life and health reinsurance, and some have primary insurance lines, such as casualty insurance, that are not closely linked to property reinsurance.
Discussing the wider implications of current U.S. trade policy on the industry, Morningstar DBRS said, “Although insurance companies primarily engage in the provision of financial services, the imposition of tariffs by the U.S. on many goods imports will adversely impact the global insurers’ business and operating environment.
“We expect North American insurers that sell auto and property insurance policies to be the most directly and highly affected because of the ensuing claims cost pressures related to car prices, cost of car repairs, and expenses associated with property rebuilding materials.
“Life and health insurers in the UK and EU are, in our view, relatively less affected under the current tariff environment. Uncertainty around the direction of U.S. trade policy and the likely responses from U.S. trading partners present risks to our assessments.”
Nadja Dreff, Senior Vice President, Sector Lead Global Insurance & Pension Ratings, Morningstar DBRS, added, “Despite these large trade and market disruptions, we believe that the impact on most well-diversified insurance companies is manageable.
“We expect insurers will take mitigating actions in the form of premium increases, adjustments to supply chains, tighter control of expenses, and potential investment portfolio reallocations.”
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