There is still significant uncertainty around the topic of tariffs and as the potential implications for insurers and reinsurers continues to evolve, in terms of what line of business and what part of the world, global carrier AIG is going to be proactive and ensure it has the appropriate loss costs and margin built into its pricing, according to Chief Executive Officer, Peter Zaffino.

Speaking recently on AIG’s first quarter 2025 earnings call, following the release of a solid set of quarterly results, AIG’s Zaffino discussed the uncertain and constantly evolving tariff situation.

He began by providing some facts around exports to the US, explaining that only seven countries worldwide export more than $100 billion to the country, with China, Canada, and Mexico being the only countries that export more than $250 billion.

“Altogether, tariffs create uncertainty, which may lead to lower levels of transactional activity in the near term, impacting certain commercial businesses. But it’s premature to predict any specific outcomes related to these emerging macro trends,” said Zaffino.

For companies in all sectors, continued the CEO, the greatest challenge is understanding the real impact of tariffs and how they are changing.

“There’s complexity not only with tariff policies evolving, but also with the potential impact on supply chains. It’s also important to consider the implications to loss costs and inflation,” he continued.

To help analyse the complex situation, Zaffino offered a property re/insurance market example.

“Typically, in a high net worth claim, and of course, it’s subject to the particular type of loss, approximately 60% of the loss would be for rebuilding costs, 30% for content and 10% or there about for allocated loss adjustment expense. When considering materials such as lumber, floor coverings, windows, steel, marble or granite, you need to take into account increased inflation rates. Then you should consider which of these items are imported. For example, Canada represents roughly 85% of all US softwood lumber imports. This added dimension further complicates the calculation of future loss costs.

“Additionally, if there’s another major catastrophe in 2025 beyond the January wildfires, we could see demand surge, supply constraints and further inflation, which may also lead to extended business interruption,” said the CEO.

He went on to stress that insurers also need to keep track of the effects on sales, payroll and other factors to calculate the potential impact on future premiums.

During the Q&A, Zaffino was questioned on monitoring the uncertainty surrounding tariffs, specifically what underwriting, pricing, and policy administration efforts need to happen to reflect the uncertainty as the company finds contracts that are going to be exposed in the near term.

“There’s a couple of things,” said Zaffino. “One is looking at the inflation factors within lines of business that we think will be impacted, certainly property. We tried to outline that in my prepared remarks. You could have catastrophe losses that have been modelled that will be significantly more depending on what happens with supply, and also density, and also size of loss. So, there’s so many different variables.

“I think looking at each of the loss cost inputs is going to be really important. An example, if I could just expand a little bit, which is what you saw, really, in the international loss ratio this quarter, is that we’re cautious, and we saw the loss ratio published increase a little bit, but none of the underlying loss ratios deteriorated. One side fact was that part of AIG Next had unallocated loss adjustment expense that found its way into the international business, that used to sit in other operations.

“But we also looked at our best estimates, no underlying loss ratio deterioration happened in the international portfolio, but we built a little bit of risk margin in international to deal with the uncertainty that could be in front of us with different lines of business,” explained Zaffino.

Adding: “And so, we are cautious. We’ve done this in the past where we feel very good about loss ratios, very good about margin, but we may put a little bit more margin in for lines of business that we think could be potentially impacted.

“So, this is something that is evolving daily. What lines of business, what part of the world changes quite a bit. And we’re going to be on our front foot in terms of being proactive and making sure that we have the appropriate loss costs and margin built into our pricing.”

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