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Rule Change Levels Playing Field for Massachusetts Insurers Using Fixed Income ETFs

Fixed income ETFs may soon see a surge in investments from insurance companies in Massachusetts, following a rule change signed into law on November 20, 2024.

January 9, 2025 2 min read

State policymakers emphasized business competitiveness and proactive education around the legislation, resulting in its inclusion in their signature biennial economic development bill.
Under the new guidelines, investment in a fixed income ETF is a permitted asset and can receive bond-like capital treatment if it meets the following criteria:

The ETF is solvent and reported not less than $100 million of net assets in its latest annual or more recent certified audited financial statement;
The ETF is registered with the SEC pursuant to the Investment Company Act of 1940, the shares of the ETF are registered under the Securities Act of 1933 and the ETF is treated as the issuer of the securities issued by the fund;
The ETF has been placed on the list declared by the Securities Valuation Office of the National Association of Insurance Commissioners (NAIC-SVO) of ETFs eligible for reporting as a long-term bond in the Purposes and Procedures Manual of the NAIC-SVO;
The ETF cannot have embedded structural features designed to deliver performance that does not track the full unlevered and positive return of the underlying index or exposure (leverage or inverse ETFs);
The amount of the investment in the ETF cannot exceed 15% of the insurers capital and surplus.

This new regulation has the potential to accelerate Massachusetts insurers’ use of fixed income ETFs in their general accounts. Competitor states and those with major insurance industries that have passed similar legislation or adopted regulations to this effect include: California, New York, Texas, Iowa, and Wyoming.

View the full SPDR ETF line-up, including NAIC designations and S&P® ratings. Questions? We’re here to help. You can reach us at USSPDR_Insurance@ssga.com.

Massachusetts represents 9% of net admitted fixed income assets in the US insurance market — the second-largest holdings in the country behind New York which houses 22% of net admitted fixed income assets.¹

Footnotes

Disclosure

Important Risk Information

The views expressed in this material are the views of SPDR Insurance Team through the period ended December 3, 2024, and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.

The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.

There can be no assurance that a liquid market will be maintained for ETF shares.

Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs.

Diversification does not ensure a profit or guarantee against loss.

Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates rise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

All information is from SSGA unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

NAIC designations are assigned to securities held by state-regulated insurance companies by the Securities Valuation Office (SVO) of the National Association of Insurance Commissioners (NAIC). Designations are opinions of credit quality, and range from the highest quality of 1 to the lowest of 6. A higher quality designation results in less capital requirements to support the insurers’ investments. Unlike the ratings of nationally recognized statistical rating organizations, NAIC designations are not produced to aid the investment decision making process and therefore are not suitable for use by anyone other than NAIC members.

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