Shifting U.S.trade and immigration policies are introducing a new, unmodeled layer of risk for the insurance-linked securities (ILS) market, according to Jack Burdick, Senior Associate at investment manager Neuberger Berman.As Burdick notes in a recent market commentary, this shift in attention comes after a challenging start to the year.“The re/insurance and insurance-linked securities (ILS) industry saw a turbulent start to the year with the devastating and record-breaking Los Angeles wildfires in January that were followed by severe thunderstorm, hail and tornado activity across the country throughout the spring,” Burdick said.

“Considering these losses alongside forecasts of an above-average Atlantic hurricane season, the physical environment continues to prove challenging,” he added.But Burdick’s commentary highlights an additional layer of complexity that sits outside traditional hazard models, economic policy that could sharply increase the cost of recovering from disaster.“Simultaneously, Trump administration policies, namely those related to tariffs and immigration, introduce additional challenges as we believe they could lead to inflated property replacement costs in the event of a natural disaster,” Burdick explained.

“Over time, the impacts of these policies will be incorporated into the risk modeling and pricing of ILS instruments; however, as the risks of costlier materials and labor in the near term remain non-modeled (i.e., a potential source of loss not explicitly considered by a catastrophe model), we believe ILS participants must actively consider the potential impacts.” Much of the concern appears to center around material inputs.“Three countries at the center of trade negotiations, Canada, Mexico and China, provide much of the imported materials supply.We would likely see the biggest impacts from Canadian lumber, Chinese steel and Mexican and Canadian concrete, while major effects would occur in auto losses, as 60% of replacement parts are currently supplied by the three aforementioned countries,” Burdick added.

However, while some areas, such as residential roofing, are less exposed due to domestically sourced materials, complexity in other areas of reconstruction, such as commercial roofing, could leave insurers vulnerable to cost surges after a major storm or wildfire.The labor picture is equally pressing.“Trump administration immigration policies targeting non-visa or green-card holders, which comprise up to one fifth of the construction industry laborers, could likewise disrupt the re/insurance industry,” Burdick added.

In catastrophe-prone regions like Texas, Florida, and California, where immigrant labor forms the backbone of the rebuilding workforce, availability constraints could become an unexpected amplifier of loss severity.“As large events strain the availability of materials and labor, these shortages will likely constrict further given the shrinking workforce, compounding already inflated replacement costs,” Burdick noted.Despite these emerging risks, Burdick highlights how the ILS market has remained resilient.

“Despite the volatility experienced after initial tariff announcements, the ILS market remains fundamentally uncorrelated to traditional asset classes, as reflected by the Swiss Re Total Return Cat Bond Index, which finished the first quarter of 2025 up 0.93%,” Burdick continued.“Further, an inflationary environment would likely justify reinsurance repricing to account for increased costs and sustain high interest rates on cash collateral to the benefit of cat bond investors, as catastrophe bonds are floating-rate notes.” Burdick concludes with a broader reminder for the sector.“As we await clarity on the outcomes of these policies, we are reminded that ILS managers are increasingly tasked with the evolving complexity of managing natural catastrophe risk.

We believe the ability to analyze these factors and translate that analysis into effective investment decisions will be crucial to investment success within the sector over time.”.All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.Our can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.