Tariffs and trade fragmentation dampen growth but re/insurance resilient - Swiss Re SIGMA study

The imposition of sweeping US tariffs is expected to create serious headwinds for the global economy, with reverberations already being felt across the non-life insurance and reinsurance sector.

The unfolding regime of economic fragmentation, protectionism and uncertainty will slow premium growth and increase claims costs, according to the Swiss Re Institute’s latest World Insurance sigma report.

The paper singled out US motor and construction lines, while also driving up reinsurance costs and limiting global risk pooling, the latter at the core of the reinsurance business model.

“US tariffs are likely to increase insurance claims severity in the US, and may dampen insurance demand,” the report said. “This is especially true for specialty lines tied to economic activity, such as credit and surety, marine, and engineering.”

Swiss Re forecasts global GDP growth will decline to 2.3% in 2025 from 2.8% in 2024, with non-life premium growth slowing to 2.6%, down from 4.7% last year.

This trend is particularly stark in trade-exposed classes, the reinsurer observed.

“Premium growth will likely slow in the environment of economic slowdown, more so in trade-exposed areas such as marine and trade credit insurance,” the report noted.

US consequences 

The US is expected to bear the brunt of the insurance impact, particularly in the motor segment, according to Swiss Re.

Tariffs on imported car parts and vehicles are set to drive up claims costs. Swiss Re estimates motor repair and replacement costs will rise 3.8% in 2025, adding inflationary pressure to an already stressed line.

“US motor physical damage is the most tariff-impacted insurance sector,” the report said. “However, claims severity increases should be modest compared with the post-COVID-19 inflationary impact.”

Jérôme Haegeli, Swiss Re’s group chief economist, said the wider implications of tariff escalation and global fragmentation would challenge insurers’ ability to deliver affordable protection.

“While insurers’ profitability outlook is still benefiting from rising investment income, we expect tariffs to slow global GDP growth, and consequently weigh on insurance demand,” he said. “In the long term, US tariff policy is another move towards more market fragmentation, which would reduce the affordability and availability of insurance, and so diminish global risk resilience.”

Beyond the US, effects will vary. Tariffs are expected to have a net disinflationary impact in Europe and Asia, due to weaker demand rather than supply-side cost increases. In these regions, growth in construction and commercial lines may slow as business investment is curbed, but the immediate pressure on claims is expected to be less severe.

The longer-term risk for the global re/insurance industry is the growing difficulty in diversifying risk across borders.

The report warns “trade barriers and supply chain disruptions or reshoring may push up inflation for prolonged periods, feeding into higher claims costs”, while “restrictions on free capital flows for re/insurers can lead to inefficient capital allocation, higher capital costs, and higher insurance prices, possibly curtailing insurability of peak risks.”

Despite the challenging environment, the non-life sector’s profitability outlook remains relatively positive in the near term. Investment yields continue to rise, supporting returns even as underwriting margins come under pressure.

Swiss Re said it expects global P&C underwriting results to remain broadly stable at around 1.5–2% of net premiums earned, with return on equity (ROE) forecast at 9.7% in 2025.

Not all negative

Some areas could see increased demand.

“Tariffs and uncertainty may create some opportunities for insurers. This is particularly the case for lines of business offering protection against economic and financial disruption, such as credit and surety insurance,” the report said.

Marine insurers outside the US could also benefit from a shift in global supply chains as non-US blocs deepen trade ties, the paper suggested.

Nevertheless, the systemic risks posed by a more fragmented world are substantial, according to the report.

“Political fragmentation reduces international cooperation on mitigating critical global risks such as climate change, pandemics, and cyber risks,” the report stated. “Society ultimately bears the cost of fragmentation as firms and individuals have less insurance coverage, keeping protection gaps wide.”

As insurers seek to navigate the new environment, Swiss Re’s Haegeli offered a note of caution and resilience.

“Geopolitical and economic fragmentation will increase risks, but the insurance industry has a key role to play in maintaining global resilience. That role will become harder to fulfil — but never more essential,” he added.