Life Insurers and Tariffs

Watching the equity markets drop last week and so far this week, I spent some time thinking, researching, and pondering how tariffs will affect US-based life insurers. While they are not directly affected by tariffs in the way that manufacturers or exporters/importers are because they don't typically deal in physical goods. However, tariffs can impact them indirectly through broader economic effects. Here are a few ways how:

1. Investment Portfolio Impact

Life insurers invest heavily in financial markets (stocks, bonds, real estate) to generate returns that fund future claims. If tariffs trigger:

• Market volatility

• Stock market declines

• Reduced corporate earnings

…then insurers may see lower investment returns, which can hurt profitability.

2. Interest Rates

Tariffs can influence monetary policy. For example:

• If tariffs slow down economic growth, central banks may cut interest rates.

• Lower interest rates reduce bond yields, which can hurt insurers' investment income—especially since they rely heavily on long-term fixed-income investments.

  
  

3. Inflation

Tariffs often lead to higher prices on imported goods. This can fuel inflation, which may:

• Increase claims costs, particularly for policies with indexed benefits.

• Put pressure on insurers to raise premiums, which could reduce demand for new policies.

  
  

4. Economic Slowdown or Recession

If tariffs escalate into a full-blown trade war:

• Businesses may cut jobs.

• Consumer confidence drops.

• Fewer people buy life insurance or maintain their policies.

This can lead to lower sales, higher lapse rates, and deterioration in profitability.

While tariffs don’t hit life insurers directly, the ripple effects on financial markets, interest rates, inflation, and economic growth can indirectly but significantly impact their performance.