Unsatisfied with sitting on the sidelines, insurers have also jumped into the ETF space to compete with conventional money managers in an attempt to safe-guard investment assets.
Insurers are among the fastest-growing institutional buyers of ETFs and in a bid to protect against investor assets being stolen away by the low-cost ETF investment tool, insurers are now betting on their own ETF strategies, Bloomberg reports. So far, the change in direction seems to be working as insurers’ own ETFs now make up $25.3 billion, compared to just $1.9 billion five years ago.
In an environment of low interest rates pressuring life policies, insurance companies are looking into asset management as a way to diversify and bolster revenue streams. Consequently, some have turned to quick and relatively cheap-to-launch ETFs as an ideal vehicle to boost their bottom, especially since they can just repackage their time-tested strategies in an ETF wrapper.
“Passive is impacting flows in the asset management industry,” John Barnidge, an analyst at Sandler O’Neill & Partners LP, told Bloomberg. “They’re probably trying to fight back a little bit, accepting that it’s part of the reality and doing their own ETFs.”
For example, United Services Automobile Association debuted its first ETFs in October while Principal Financial Group has launched four since the start of last month. New York Life Insurance now offers 23 ETFs after acquiring IndexIQ. TIAA’s Nuveen Investments unit has 11 under its umbrella. Prudential Financial, the largest U.S. life insurer by assets, is also mulling over the ETF option through a unit of its $1 trillion asset manager, PGIM. Nationwide Mutual Fund Insurance, one of the top 10 home and auto insurers, joined the ETF fray this year.
“When you have multiple insurers with an ETF program then you want to jump in,” Paul Kim, head of ETF strategy at Principal, told Bloomberg, projecting the company would like to have as many as 30 funds within five years. “It’s a rational competitive response.”
Insurers are warming up to the idea of an ETF of their own after using ETFs to manage their own money. Almost half of those surveyed by Greenwich Associates revealed last year that they’d start using ETFs within the past two years and almost 25% started buying within the previous 12 months.
Looking ahead, a regulatory change could make these funds even more appealing, potentially changing the accounting treatment of ETFs for insurers that could lead to adding more than $300 billion to bond ETFs alone over the next firve years.
“As people are becoming more educated and more familiar with ETFs, you’re seeing the usage of them increase proportionately,” Lance Humphrey, a money manager in the global multi-assets team at USAA, said told Bloomberg.
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