Jack Meskunas, executive director of investments, Oppenheimer & Co., considers the outlook for captive insurance company portfolios under ‘Trump 2.0’
As we move ahead in 2025, the landscape is filled with uncertainty. It is crucial for businesses in the captive insurance sector — as well as those that manage them — to stay informed about potential shifts in strategies coming from the new administration, and how those shifts may affect stock and bond valuations.
The new president and the cabinet he has assembled have proposed changes to virtually every way the US government conducts business, both domestically and internationally. As such, preparing for uncertainty and knowing that your captive’s portfolio is optimised (and resilient) is crucial.
Proposed policies include changes to taxation, regulation, cost cutting (think DOGE), energy policy, immigration, tariffs and trade.
Taxation
Initial discussions are to make the 2017 Tax Cuts and Jobs Act from 2017 permanent. These cuts were set to expire and would have resulted in hundreds of billions of new taxes affecting individuals and corporations alike.
‘Trump 2.0’ has proposed cutting the corporate tax rate to 19 per cent, or even as low as 15 per cent — putting the US on more even footing with the rest of the world. Once passed, the uncertainty around future tax rates may allow both individuals and corporations — including captives and other insurance companies — to make long-term plans to increase long-term growth and profitability.
Regulation
‘Trump 1.0’ had a significant positive impact on businesses by cutting red tape and reducing burdensome regulations. Expect the same — and more — from Trump 2.0. Deregulation could enhance M&A activity, raising overall equity valuations and increasing corporate growth.
Cost-cutting
Reducing government spending is something that every politician promises and few (perhaps none) have delivered. Trump 2.0 seems to be off to a strong start with the Department of Government Efficiency (DOGE), aimed at finding US$1 trillion of savings.
As we have seen however, attempting major reworking of government employees and spending does not come easily, and the administration is already facing many lawsuits and restraining orders from district judges and elsewhere.
Energy policy
Trump 2.0 assurances to significantly increase energy production and deregulation in the energy sector will likely dramatically lower energy prices. Lower prices for energy are a powerful deflationary factor as energy is an input into almost everything. Lower energy costs will likely increase corporate profits. More domestic production reduces and may even eliminate US dependence on purchasing energy from unsavory regimes worldwide.
Immigration
A major campaign promise from the Trump team was sealing the southern border and tightly controlling illegal immigration, coupled with “massive deportations”. These issues are controversial, particularly if millions are deported. However, so far the focus has been on deporting only illegal immigrants convicted of crimes that have standing removal orders. Massive deportations could limit the availability of ultra-low-cost labor that is used primarily in agriculture and food service. Higher minimum wages in some states have caused job losses by US citizens, some of which are being picked up by undocumented workers. Massive — think 5 to 10 million — deportations could be inflationary.
Tariffs and trade
It was estimated by the Federal Reserve that tariffs in 2019 resulted in the loss of about 43,000 factory jobs in the US. Tariffs proposed so far by Trump 2.0 seem more like negotiating tools. The threat of new tariffs have been aimed to get concessions or cooperation from other countries that previously were not willing to cooperate or coordinate with US policies.
For example, Colombia initially refused to accept deportation flights, but the threat of 25 per cent tariffs resulted in almost immediate capitulation and the tariffs never were imposed. Additional threats against Canada, Mexico, and Panama all seemed to have similar goals regarding illegal immigration, illegal drug trade, and (in the case of Panama) to get their withdrawal from the China Belt and Road Initiative.
