A few months into Donald Trump’s new term, the whole world was taken by surprise by speculation about a dramatic increase in import tariffs. It is the so-called “rate shock” (tarifaço). Political convictions or speculation aside, these measures have enormous commercial consequences, with a strong possibility of impacting the insurance industry.
The ripple effect will hit the insurance industry’s costs, especially in reinsurance. Brazil still depends significantly on international reinsurance capacity – in 2024, for example, R$22.3 billion had been contracted in reinsurance up to October, according to the IRB+Mercado Bulletin[1]. A large part of this amount was negotiated with reinsurers from abroad[2], based in countries such as Germany, Switzerland, France and Spain.
Global trade tensions (such as those caused by the tariffs) interfere directly in the pricing of reinsurers, who begin to incorporate this geopolitical risk into their calculations. This could result in more expensive or less advantageous reinsurance contracts for Brazilian insurers, putting pressure on the pricing of policies and raising the premiums charged to policyholders.
Immediate speculation about Trump’s measures, published by InfoMoney[3], suggests an initial devaluation of the real against the dollar. This could also have an impact on the insurance market, especially “car insurance”, which is dependent on imported parts and whose costs are affected by the devaluation of the real against the dollar and the main European currencies.
In addition, the general rise in the price of imported goods – which also includes industrial machinery and medical equipment – has a direct impact on “compensation” costs. As these items make up the insured value or the costs of repair and replacement in the event of a claim, an increase in their prices can raise the average cost of the claim rate and impact on the profitability of the portfolios.
The recent 50% tariff announced by the president of the United States (Donald Trump) will hit Brazil’s orange juice production hard and, inevitably, the price of its transportation insurance, as it raises the final cost of the product, including insurance, which is an essential component of the logistics chain.
Coming off a year of growth and expansion, even with the great impact of the natural tragedies that occurred in Brazil, the insurance segment cannot fail to be attentive to these external movements, because although it is still too early to accurately measure the effects of these tariffs, we must not ignore it and rely solely on the resilience of the market.
[1] Source: https://www.irbre.com/seguradoras-contrataram-r-223-bilhoes-em-resseguros-ate-outubro-de-2024/
[2] Source: https://infograficos.valor.globo.com/valor1000/rankings/as-maiores-companhias-de-resseguros/2024
[3] Source:
Available in: https://www.ernestoborges.com.br/publicacoes/possiveis-efeitos-colaterais-do-tarifaco-no-mercado-segurador-brasileiro/
Autor: Sergio Luiz Bernardelli Junior • email: sergio.bernardelli@ernestoborges.com.br
