Insurance Companies Could Help Fuel ETF Industry Growth

Insurance companies are slowly including exchange traded funds in their general accounts as a way to lower costs and to easily access high-quality assets.

“Insurance companies only hold 1.3% of their surplus as regards policyholders in ETFs, but usage has become prevalent and is likely to increase given the wide array of low-cost passive products that can support both broad and narrow investment strategies,” writes Todd Rosenbluth, S&P Global Market Intelligence Director of ETF Research, in a note.

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In 2015, insurance companies held $15.4 billion in ETFs in their general accounts, compared to $14.1 billion in 2014 and $13.0 billion in 2013, according to the National Association of Insurance Commissioners (NAIC).

S&P Dow Jones Indices found that ETF assets held by insurance companies have more than doubled in the 10 years ended 2015 and expects ETF holdings by insurance companies to double in five years.

“While alternatively weighted smart-beta ETFs gained in popularity in the broader investment community in 2015, lower-cost market-cap weighted ETFs remained the most widely held,” Rosenbluth said.

Insurers’ preferences for traditional beta-index ETFs may be not all to surprising as they are considered more conventional investment plays. Moreover, these funds may have garnered a high-quality, risk-based capital NAIC designation. The higher the quality, the less capital insurers will be required to back up the investment.


“NAIC 1 is assigned to obligations exhibiting the highest quality,” according to NAIC. “Credit risk is at its lowest and the issuer’s credit profile is stable. This means that interest, principal or both will be paid in accordance with the contractual agreement and that repayment of principal is well protected.”