P&C underwriters to be negatively affected by tariffs on Mexico & Canada: J.P. Morgan

While analysts at J.P Morgan have suggested that a prolonged trade war or spike in U.S. tariffs would be a manageable event for life insurers, higher materials costs would reportedly spell a negative for most P&C insurers.

“Most investors have been ascribing a very low likelihood to heightened trade tensions. We have been surprised by the lack of interest in the implications of a trade war on insurance stocks, especially for personal lines carriers where loss costs are heavily affected by imports from Mexico and Canada,” J.P Morgan said in a new report.

In November of 2024, Reinsurance News highlighted that the global re/insurance community remained cautious about President Donald Trump’s stance on international agreements and trade policies, which, according to some, could create complex challenges.

As per analysts at J.P. Morgan, P&C underwriters are likely to be negatively affected by new tariffs, especially those on Mexico and Canada.

Tariffs have been a major focus in the mainstream media lately, with many observing that shares in Europe and Asia have declined after President Donald Trump announced tariffs on Canada, Mexico, and China.

Meanwhile, the US dollar has surged in currency markets, reaching a record high against China’s yuan, while the Canadian dollar has dropped to its lowest level since 2003.

“Mexico and Canada account for over half of auto parts imports to the U.S., while Canada is among the major importers of lumber and other materials vital for the housing market,” J.P. Morgan explained.

The firm continued, “In our opinion, personal lines companies are especially susceptible to sustained high tariffs on imports from Canada and Mexico. Commercial lines insurers and reinsurers are exposed to tariffs and their inflationary impacts as well but to a lesser extent.

At the same time, P&C brokers are reportedly negatively exposed to a potentially strong US$, possible reductions in short-term rates, and weaker GDP growth. However, potential price increases by commercial lines insurers and reinsurers present a silver lining, according to J.P. Morgan.

As mentioned, the implications of a trade war mixed for the life insurance sector. J.P. Morgan went on, “In our view, a prolonged trade war has negative implications for life insurers to the extent it pressures the equity market, credit trends, forex, and the economy.

“Still, the life insurers seem more insulated than many other sectors, and companies with high exposure to interest rate-sensitive businesses and modest exposure to equity-sensitive products could actually benefit from wider credit spreads and higher corporate bond yields.”

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