North American insurers poised to withstand current market volatility: S&P

North American insurers’ robust capital and liquidity buffers will allow them to withstand the current market volatility, including tariff-related downturns, without an immediate impact to ratings or outlooks, S&P Global Ratings highlighted in a recent report.

Global markets were significantly impacted by the US administration’s announcement of sweeping tariffs and the subsequent temporary pause of some of those actions on April 9.

“Erosion of market value could have a significant impact on the insurance industry because, as the value of investments held by insurance companies declines, it can hurt their financial Stability,” S&P analysts explain in the Robust Capital Supports North American Insurers Amid Market Volatility’ report.

Highlighting: “Overall, however, we believe re/insurers have better and more evolved risk management practices, including well-defined tolerance levels. In our view, insurers are well positioned to handle the immediate impact of market downturns and have managed their portfolios amid market turbulence given their robust capital and liquidity buffers.”

According to analysts, the North American property/casualty sector is well equipped to endure a moderate level of market volatility, this thanks to its robust capitalization and stable underwriting margins.

The most immediate impact of market volatility is the swings in equity markets and potential segments of the credit markets. P/C insurers’ stable asset mix (55% bonds/loans, 24% equities as of year-end 2024) and strong 3% average investment yield (2020-2024) support their capital, the report noted.

Limited credit losses are expected due to high-quality bond holdings (95% investment-grade). However, their equity exposure (average 26.4% over five years) poses a greater risk to capital given equity market volatility. While lower interest rates could boost bond values, net investment income might decline.

In the case of reinsurance, S&P believes the sector is also well positioned to manage elevated natural catastrophe losses in the first quarter, alongside the recent financial market volatility, mainly thanks to its strong capital position.

While North American life insurers generally have no significant direct exposure to stock market fluctuations, S&P analysts are closely monitoring the potential secondary effects of any market downturn.

“Drops in interest rates, if significant enough, may hurt sales and profitability, as well as slow down mergers and acquisitions. If the downturn further pushes the broader economy into a recession, it could also hurt life insurers’ large bond portfolios because of the potential for impairments and downgrades,” the report stated.

It continued: “This could affect our view of capitalization. With all that said, there is currently no indication that market turmoil would indeed have such effects, and that the impact on interest rates have so far been minimal.”

Within the health insurance sector, some insurers will see downside equity market volatility will dampen their capitalization. This would impact mainly not-for-profit and mutual companies, which have up to 25%-30% of their invested assets in equity securities.

In contrast, publicly traded, for-profit companies generally take on zero to limited equity market investment risk, analysts noted.

Equity market volatility poses a capital risk for a sector already facing challenges, with a third of ratings carrying a negative outlook due to operating stress across commercial, Medicare Advantage, and Medicaid segments.

Tariffs present broader recessionary risks, potentially dampening commercial enrolment but increasing enrolment in countercyclical segments like ACA and Medicaid, analysts highlighted.

Separately, the 2026 Medicare Advantage rate increase of 5.06% offers strategic flexibility for enrolment growth and earnings improvement, a positive credit factor for the sector.

Yet its benefit depends on pricing, as companies would need to price their products in a way that is sufficient to cover actual medical cost inflation, which has been elevated in recent periods.

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