Since the first US-listed ETF launched in 1993, ETF adoption by institutional investors has been growing steadily as entities around the world are widely embracing a new way of investing.
Insurance companies in particular are rapidly expanding their use of ETFs in general account portfolios, both in terms of AUM and innovative portfolio applications. ETFs are becoming a cornerstone component of many insurance general account portfolios — and the runway for future growth is robust. Here, we examine this important trend, drawing on recent research by S&P Global Market Intelligence.2
Key Drivers of ETF Adoption among Insurers
Institutional investors are drawn to ETFs’ ability to lower costs, improve efficiency, and maximize the impact of asset allocation decisions. Additional benefits include the potential for enhanced liquidity, versatility, and pricing transparency.
Fixed income ETFs are a particularly fast-growing segment of the market and of specific interest to insurers. Traditionally, insurance companies have sourced fixed income securities from broker-dealers — but declines in broker-dealer inventories, increases in transaction costs for individual bonds, and a prolonged low interest rate environment have pushed insurers to identify other means to find fixed income investments. Regulatory developments are another supportive factor for broader use of fixed income ETFs by insurers.
Real-World Applications: ETF Use Cases in Insurance General Accounts
ETFs present a number of tactical and strategic applications for insurance general accounts.
Recent applications by our clients include:
By the Numbers: Insurance General Accounts Increasingly Adopt ETFs
In a turbulent 2020, US insurers increased their ETF AUM by 18% year-over-year to $36.9 billion, keeping pace with the strong growth rate established in recent years. As a percentage of operating companies, the number of insurers using ETFs increased to a record 36%.
Source: ETFs in Insurance General Accounts – 2021, S&P Dow Jones Indices, as of December 31, 2020.
Although the amount invested in ETFs represents a small fraction of the $7.2 trillion in overall invested assets of US insurance companies, growth in ETF usage is expected to continue outpacing the growth of invested assets by a substantial margin. In fact, if insurance companies continue to invest according to the trend, their use of ETFs could almost double in the next five years — a mark already achieved between 2015 and 2019.
Source: Cerulli Associates and ETFs in Insurance General Accounts – 2021, S&P Dow Jones Indices, as of December 31, 2020.
Taking a closer look at the data from 2020, we note several key developments:
Source: ETFs in Insurance General Accounts – 2021, S&P Dow Jones Indices, as of December 31, 2020.
Source: ETFs in Insurance General Accounts – 2021, S&P Dow Jones Indices, as of December 31, 2020.
Source: ETFs in Insurance General Accounts – 2021, S&P Dow Jones Indices, as of December 31, 2020.
As an ETF leader, our expertise has helped us build trusted partnerships with top insurance companies. You can see the full SPDR ETF line-up here, along with NAIC designations where applicable. To learn more about how we may be able to assist you and your clients, please reach out to the SPDR Insurance team, Benjamin Woloshin and Dewey Yoo.