Nevertheless, Federal Reserve Chair Janet Yellen is optimistic that inflation will turn around. Yellen, speaking in Cleveland to the National Association for Business Economics, said “low inflation likely reflects factors whose influence should fade over time,” Bloomberg reports. While the Fed’s understanding is “imperfect,” the uncertainty “strengthens the case for a gradual pace of adjustments” in interest rates, Yellen added.
With the markets look toward higher rates, the insurance industry can capitalize on wider margins. The industry has previously been suffering from spread compression on products like universal life and fixed annuities due to the stubbornly low rate environment. With greater investment income, insurers see conditions improve as rates rise.
ETF investors can also capitalize on a stronger insurance segment through targeted ETF plays, such as the SPDR S&P Insurance ETF (NYSEArca: KIE), iShares US Insurance ETF (NYSEArca: IAK) and PowerShares KBW Property & Casualty Insurance Portfolio (NYSEArca: KBWP).
KIE follows more of an equal-weight methodology where it’s largest component only makes up 2.5% of the portfolio. IAK follows a market capitalization-weighted index of broad insurance companies, including a 9.2% tilt toward Chubb (NYSE: CB), 7.8% to American International Group (NYSE: AIG) and 7.8% MetLife (NYSE: MET). Lastly, KBWP focuses on property & casualty insurance providers, such as Progressive Corp 8.2%, Arch Capital Group 8.1% and Travelers Cos 8.1%.
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