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Effects from the recent economic decisions by the US government could be seriously damaging to investor confidence in the country as well as possibly reigniting the higher inflation trend.
Last week, a US federal court ruled the tariffs “exceed any authority granted to the president”.
However, the following day, an appeals court agreed to a temporary pause in the decision pending an appeal hearing. The Trump administration is expected to take the case to the Supreme Court if it loses.
What this means for insurers is increased instability. Volatility in the markets and hesitance from many in the market to make big decisions until the situation sorts itself out.
While the markets have reacted well, there are troubling signs for the underlying health of the US economy, which could be worrisome for many who invest in fixed income, such as non-life insurers.
Recently, the actions of the United States have dominated political risk in 2025 so far, according to WTW’s Political Risk Survey 2025, which was released in May.
The political risk survey found that for 74% of global companies that took part in the survey, political risks appear among the top five risks on the enterprise risk management (ERM) risk register. The report said the US’s volatility, however, had long been a concern. “As far back as 2021, the US appeared on our annual top ten list of countries where companies experienced political risk losses,” it said. “At the time, the losses were driven by US export controls imposed against China (which negatively impacted US microchip manufacturers) and US secondary sanctions imposed on Iran (mostly impacting European and Asian companies with investments in or trading relationships with Iran).”
The undermining of the rules-based order is also undermining the effectiveness of diversification as a political risk mitigation strategy, panellists said.
Earlier this year, Karen Ward, Managing Director and EMEA Chief Market Strategist at J.P. Morgan Asset Management told delegates at the Pensions and Lifetime Savings Association (PLSA) annual investment conference, said that an over-reliance on US markets, in particular tech stocks, could threaten outcomes for investors in the rest of the world and need to be managed more effectively. The risk could begin to rack up for investment arms for insurers especially for those with more long-term duration portfolios when taking into consideration what the demographics could mean.
Alberto Matellán, General Manager of La Financière Responsable, the French asset management subsidiary of MAPFRE said last week there were macro dangers surrounding US assets.
The worries come amid the poor performance of 20-year bonds auctioned by the US Treasury and the earlier Moody’s downgrade of US sovereign debt.
Last week, Donald Trump “summoned” US Federal Reserve Chair Jerome Powell and said he wanted interest rate cuts. In a subsequent statement, the Fed said, “Chair Powell did not discuss his expectations for monetary policy, except to stress that the path of policy will depend entirely on incoming economic information and what that means for the outlook.”
In early May, the Fed did not move US interest rates from the 4.25% to 4.5% mark.
Matellán said he was concerned about higher inflation coupled with a drop in consumer and business confidence, which together could “curb investment”.
“Following a strong equity rally, we believe markets have less buffer to
absorb the pressure from President Trump’s tariff threats on the EU."
While troubles in the US may be good for Europe and the UK, Matellán also suggested that investors lock in gains from Spain’s strong year-to-date stock market performance and think about why the latest UK inflation figures are not just a UK problem.
He added that it “may be better to focus on clearer indicators, such as the level of US debt and interest rates”.
Elsewhere, Candriam said, “Following a strong equity rally that started on 7 April, we believe markets have less buffer to absorb the pressure from President Trump’s tariff threats on the European Union and from uncertainties linked to the budget process in the US.”
Amid other macroeconomic factors, there is concern that some of the trade war rhetoric could have hurt the shoots of recovery after a stagnant few years of growth in Europe. This week, the German federal Labour office figures showed the number of unemployed people increased by 34,000 in seasonally adjusted terms to 2.96 million, approaching the three million threshold for the first time in the past decade.
Elsewhere numerous countries are still cutting their interest rates; last week the South African Reserve Bank (SARB) cut its repo rate by 25 basis points (bps) to 7.25%, while last Tuesday the Reserve Bank of New Zealand cut its official cash rate by 25 basis points to 3.25%.
The next UK decision on interest rates will be in August after it cut the interest rate to 4.25% in May.
The European Central Bank will make its next decision on interest rates on June 5.
The Bank of Japan is expected to do a rate hike in July, said ING.
Meanwhile, separate figures released last week in the UK by the Office of National Statistics said that an estimated 14.1% of British working-age households have no members in employment.
However, UK GDP grew 0.2% month-on-month in March, following a 0.5% rise in February, a welcome reprieve from some recent figures.
"With the winds of tariff turmoil whipping up economic seas, today's better than expected GDP figures for the UK show an economy that has so far been able to navigate itself to calmer waters,” said Isaac Stell, Investment Manager at Wealth Club. “Output grew during the month across two of the three major sectors, with the economic engine, the services sector growing by 0.4%,” he said.
“The impact from the tariff induced storm will likely have pitched the
economy onto a different path, at least in the short term.”
The construction sector saw solid progress whilst production slipped due to falls in the manufacturing sector.
“UK GDP grew at a faster rate of knots during the first quarter and its fastest rate in three quarters. Impressive, albeit backward looking,” said Stell, who was overall still pessimistic about the results and what they could mean.
“It could be easy to get carried away by [the] positive surprise, but the winds of tariff turmoil are yet to be fully appreciated in the figures,” he said. “It was only a few days after the quarter end that the ‘Liberation Day’ tariffs were announced and the impact from the tariff induced storm will likely have pitched the economy onto a different path, at least in the short term.”
The UK’s recent growth could be good news for insurers as many do invest heavily in housing, which will be connected with the recent construction and production increases as well as other infrastructure projects.
However, the overall volatility continues to affect growth, and investment opportunities, and create jitters. This is unlikely to temper down anytime soon.
Insurers that focus on the short-term will likely see effects.
