European insurers face moderate tariff shock as markets tumble

European insurers have shown resilience amid the latest round of US tariffs imposed by the new Trump Administration that have roiled global equity markets.

According to a briefing paper from Moody’s Ratings, the immediate financial impact on insurers’ solvency is measurable but still contained.

However, the agency cautions that prolonged economic disruption, especially if met with interest rate cuts or retaliatory action from the EU, could erode this relative stability.

Initial impact: solvency dips but buffers remain strong

The report makes clear that while equity market turbulence has dented insurers’ capital strength, their high starting point has absorbed much of the shock.

“Sweeping tariffs emanating from the US last week have unleashed steep declines in equity markets globally which have eroded the solvency of European insurers. To date, the impact remains moderate,” Moody’s states.

The average solvency ratio across major European insurers stood at a robust 220% at the end of 2024. Though this has declined in recent weeks, the fall is described as a “low to mid-single digits” drop, cushioned by earlier gains in the first quarter of 2025.

“European insurers’ solvency ratios are sensitive to financial market shocks, particularly to equity market fluctuations,” the agency notes, but reiterates that “we view the deterioration as moderate at this stage.”

Sensitivity to equity exposure varies significantly by market. UK insurers, for example, appear less exposed due to their lower allocation to equities or because much of their equity risk sits within with-profit funds that offer a buffer via policyholder capital.

The report also highlights discrepancies in disclosures, with companies such as Allianz and AXA publishing data that includes both public and private equity, while others focus only on listed equities.

The Moody’s analysis includes scenario modelling showing a 25% equity market fall could reduce solvency by 10 percentage points. Though this shock has not materialised in full, the recent market moves have served as a real-world stress test.

Broader risks from economic slowdown and policy response

While the direct impact from equity markets has so far been limited, the report delves into more diffuse channels through which tariffs could hurt insurers. These include widening credit spreads, weaker growth, shifting interest rate expectations and inflation in claims costs.

On credit markets, the paper finds that “year-to-date, European government bond spreads have not moved materially,” but warns that “only high yield corporate bond spreads have increased significantly.”

Spreads rose by 73 basis points in early April alone. That said, European insurers primarily invest in investment-grade corporate bonds, reducing their exposure to widening high-yield risk.

The more material concern, according to Moody’s, is a potential slowdown in European trade.

“The US import tariffs, if enforced for a prolonged period, will likely significantly reduce global trade volumes,” the report states.

This matters especially for Europe’s open economies, which are already forecast to grow just 1% in 2025.

One immediate casualty could be trade credit insurance, which is closely tied to the health of cross-border commerce.

“A drop in trade volumes in Europe would primarily affect trade credit insurers, which would face lower revenues and higher claims if corporate default rates were to increase.”

Property and casualty insurers are also vulnerable, albeit less directly, due to their links to GDP growth and employment.

“Lower GDP and higher unemployment are negative for life insurers because they reduce demand for discretionary life products,” the report adds.

Another knock-on effect could come from monetary policy. Should central banks respond to economic weakness with lower rates, this could weigh on insurers’ solvency ratios.

“A scenario in which interest rates decrease to counteract the dampening effect of the tariffs on growth would be negative for insurers’ solvency.”

However, Moody’s distinguishes between short-term and long-term rates, noting that “cuts in short-term rates have a lesser impact than a decline in long-term interest rates, given the long-term nature of insurers’ liabilities.”

Inflation, retaliation and the path ahead

Moody’s also identifies inflation in claims as a persistent issue, particularly in P&C lines.

The report emphasises that “P&C claims inflation does not fully correlate with the rate of general economic inflation,” and that in Europe it has “been significantly above general inflation.” Insurers have responded by pushing through higher premiums, a trend Moody’s expects to continue.

Finally, the briefing touches on geopolitical dynamics, highlighting that the EU is exploring both negotiation and retaliation in response to US actions. “The EU has said it will attempt to negotiate over the coming weeks but will also be prepared to retaliate against US services imports, including digital services.” The outcomes of such decisions could reshape the macroeconomic and regulatory backdrop, with implications for the insurance sector beyond current solvency metrics.

The message from Moody’s is clear: European insurers have not been spared the fallout from US tariffs, but they are not yet in trouble. Capital buffers, diversification and cautious investment strategies have softened the blow. However, if tariffs drag on growth, provoke monetary easing or trigger further policy escalation, these initial cracks could widen.

The current moment may not constitute a full-blown stress event, but it offers a preview of vulnerabilities that would be amplified in a deeper or more prolonged downturn. In that context, Moody’s note serves not just as a solvency snapshot, but as a warning that the greatest risks may still lie ahead.