Tariff Turmoil and Takeaways for Insurance Investors

We check in on what has been a rollercoaster ride for markets as tariff policies bite.

Tariff Wars Upend Markets and Further Cloud the Macro Picture

It would be an understatement to call April “eventful” for insurance investors after a flurry of US tariff measures, reciprocal tariffs and rhetoric. Markets wrestled with the implications for the global macro picture and outlook for asset classes, sectors and issuers. Aside from a furious equity rally on tariff pauses, markets have been challenging. Stocks are down, credit spreads are wider and volatility is up.

The back and forth on specific tariffs remains very fluid, but if the 10% universal tariffs stay in place, we expect tariffs to slow growth rather than boost it. Combined with cuts in domestic spending and government jobs, we now expect a more pronounced US slowdown than before. Europe will take a hit to growth, too, with potential recession risk. Policy uncertainty is a significant downside risk and could lead to a global recession. Central banks may be forced to act with unexpectedly rapid rate cuts.

Interest Rates Have Been Volatile in 2025

Bond markets have been restless, too. The 10-year US Treasury bond, for example, started April at 4.2%, dropped as low as 4.0% and rose as high as 4.5% before declining by mid-month. The unprecedented volatility has led some investors to question Treasuries’ status as a safe-haven asset. Government bonds in other markets saw notable fluctuations, but they were tame in comparison.

What should insurers make of the volatility in rate markets? Our most recent forecast calls for a continued global slowdown with a substantial chance of recession and central bank rate cuts, which will influence the shape of the yield curve. But the path of rates is still largely unknown, so we see little reason to depart from our view that insurance investors should stay close to home with their portfolio duration versus liabilities.

For insurers outside the US, volatile currency-exchange rates may start to affect those who invest in US-dollar assets against non-dollar liabilities. The cost of currency hedges will likely be less predictable and more volatile, which could make US-dollar assets less appealing and lead non-US insurers to start deploying more capital closer to home.

Assessing a Reshuffled Relative Value Landscape

With markets in turmoil, we’ve seen sizable shifts in relative-value opportunities. Investment-grade corporate bond spreads have widened from their early-year lows: they’re now near their levels of last summer, around their five-year averages. We think credit spreads will largely reflect uncertainty in the assessments of how long tariffs will hang over the global economy.

In the securitized space, a lack of clarity on the extent of the economic slowdown is flowing through to underlying assets in securitizations. This has driven spreads wider in segments including residential mortgage-backed securities, commercial mortgage-backed securities and collateralized loan obligations (CLOs)—including large outflows from AAA-rated CLO funds.

The View Across Public and Private Spheres

With a rapidly shifting geopolitical picture altering the market landscape, assessments of asset allocations and opportunities must be dynamic. Incrementally, public markets look more attractive versus private markets after the recent volatility, but plenty of private opportunities remain and are worth exploring.

We think it makes sense for insurance investors to view the opportunity set as public and private exposures—not public or private. Private assets generally offer incremental spreads versus public assets and the ability to incorporate bespoke protection. Public markets are critical in tapping liquidity and expressing changing beta views quickly.

But it’s prudent to assess private allocations as they continue to grow, ensuring that risk compensation, diversification, balance sheets and liquidity characteristics align with portfolio objectives. Assessing opportunities across diverse sectors requires multiple lenses, and technology should play a role, too, with tools and systems helping to identify and access the best liquidity available.