Although the $26 billion invested in ETFs by insurance companies at the end of 2018 remains a tiny slice of the more than $3 trillion and growing ETF pie, it’s an even smaller fraction of $6 trillion in admitted assets of U.S. insurance companies. Yet as some of the biggest insurers increased their ETF exposure last year, CFRA is encouraged that growing usage by these institutional investors will provide enhanced liquidity for all who own ETFs.
According to a newly published report “ETFs in Insurance General Accounts – 2019,” written by Raghu Ramachandran of S&P Dow Jones Indices, approximately 34% of insurance companies used ETFs in 2018. Overall, they held 372 million shares of ETFs, up 7% from the prior year, even though assets under management (AUM) dipped 3% due to declines for the underlying stock and bond markets. Ramachandran highlighted that mega companies, those with $50 billion in admitted assets, increased their ETF AUM by 39% in 2018.
For example, Liberty Mutual’s ETF AUM grew 59% to $2.7 billion, while Northwestern Mutual’s more than tripled to $1.2 billion in 2018. Also encouraging were the significant increases at mega-companies Allianz and TIAA off small ETF asset bases to $918 million and $740 million, respectively.
The usage of ETFs occurred at sizable health, life, and property and casualty insurance companies. If this ETF adoption trend continues among the biggest firms, it’ll significantly drive insurance industry assets.
Top 10 Insurance Companies Based On ETF Assets
|Company||Size||Type||2018 AUM ($M)||1-Year Growth|
|New York Life||Mega||Life||1,059||1.5%|
|GuideWell Mutual Holding Corp.||Large||Health||894||60.1%|
Source: National Association of Insurance Commissioners (NAIC) via S&P Global Market Intelligence. Data as of Dec. 31, 2018
The most widely held ETF by the insurance industry was the SPDR S&P 500 ETF Trust (SPY). Though SPY shed $16.5 billion in overall ETF assets in 2018, the AUM held by insurers invested in it climbed 40% to $3.1 billion.
In contrast, the iShares Core S&P 500 ETF (IVV) and the Vanguard S&P 500 ETF (VOO), which respectively had $18.5 billion and $13.9 billion of overall net inflows last year, had net insurance AUM declines of 13% and 19%, to $1.8 billion and $1.1 billion. CFRA thinks the lower expense ratios of IVV and VOO are less appealing than SPY’s elevated average trading volume to mega-companies like Liberty Mutual.
ETFs Most Widely Held by Insurers
|Ticker||Fund||Insurance ETF AUM ($M)||2018 Insurance Growth||Industry Rank Overall*|
|SPY||SPDR S&P 500 ETF||3,127||39.9%||1|
|LQD||iShares iBoxx $ Invmt Grade Corp Bd ETF||2,922||-16.7%||32|
|IVV||iShares Core S&P 500 ETF||1,849||-12.6%||2|
|VOO||Vanguard S&P 500 ETF||1,072||-19.0%||4|
|EFA||iShares MSCI EAFE ETF||795||7.3%||9|
|VTI||Vanguard Total Stock Market ETF||722||7.2%||2|
|VEA||Vanguard FTSE Developed Markets ETF||634||47.3%||6|
|HYG||iShares iBoxx $ High Yield Corp Bd ETF||624||17.6%||62|
|IEMG||iShares Core MSCI Emerging Markets ETF||624||205.3%||11|
|IWM||iShares Russell 2000 ETF||503||11.9%||25|
Source: NAIC via S&P Global Market Intelligence. Data as of Dec. 31, 2018. *Overall rank as of May 15, 2019
Relative to the ETF industry, insurance companies also favored the iShares iBoxx USD High Yield Corporate Bond ETF (HYG) and the iShares Russell 2000 ETF (IWM). These were respectively the eighth and tenth most widely held funds among insurers, aided by asset growth, but currently are the 62nd and 25th largest ETFs based on overall ETF assets.
Yet the iShares Core MSCI Emerging Markets ETF (IEMG) saw the greatest demand among the 10 largest ETFs held as insurance AUM tripled to $624 million in 2018.
Broadening this review to the 40 most widely held ETFs by insurance companies, IEMG’s growth was the fourth largest. Topping that list was the PIMCO Enhanced Short Maturity Active ETF (MINT), which skyrocketed to $149 million, from $4.1 million in 2017.