Insurance Firms Using ETFs More

Insurance Firms Using ETFs More

There’s significant room for ETF growth within insurance companies.

Reviewed by: Todd Rosenbluth
Edited by: Todd Rosenbluth

Key Takeaways

Fundamental Context
There is room for ETF growth, as the largest insurance companies become more comfortable. Insurance company assets invested in ETFs reached $31 billion at the end of 2019, more than doubling in the last five years, and rising 16% in 2019, according to a report, “ETFs in Insurance General Accounts – 2020” written by Raghu Ramachandran of S&P Dow Jones Indices.

Yet while 35% of insurers use ETFs, the funds represented just 0.46% of admitted assets, leaving significant room for growth.

Particularly appealing is that mega-companies—those with more than $50 billion in admitted assets—were increasing their ETF share count in 2019 even as more moderately sized companies were selling.

Among the insurance company types, health companies had the greatest increase in their usage of ETFs, with the share count rising more than 20%, while life insurers sold more than 15% of their shares. Property and casualty insurance companies only modestly added ETF shares last year.

During 2019, fixed income ETF assets increased 13%, with mega-companies particularly favoring corporate bond funds and owning a much smaller number of broad market funds. In contrast, small companies—those with $500 million or less in admitted assets—were more diversified, and included Treasury ETFs.

Ramachandran also noted that, although the number of shares of fixed income ETFs held increased in 2019, the use of systematic valuation (SV) decreased. SV is a book-valuelike accounting treatment used by insurance companies that has the potential to reduce income volatility in statutory filings. Insurance companies designated just 19% of the fixed income ETF assets as SV, down from more than 30% a year earlier.

Demand Sweet Spot

Developed international equity ETFs were in demand last year. Some of the most widely held ETFs in high demand by insurance companies were international equity funds. VEA was the fourth largest position, with $1.4 billion in assets, more than doubling from the $634 million owned by insurers in 2018.

The shares owned rose 79% from the prior year, while the remainder of the asset growth was due to appreciation of the securities in inside. Peer ETF IEFA also experienced a twofold increase in assets, rising to $1.0 billion in assets. VEA and IEFA both provide exposure to developed international equity markets, but are not identical upon further review. For example, VEA owns shares of companies based in Canada and South Korea that are not found in IEFA.

Meanwhile, EFA has similar country exposure to IEFA, but fewer stakes in small- and midcap companies. In 2019, EFA only had a slight 2.4% increase in insurance assets to $814 million, due to a 16% reduction in shares held. EFA came to market earlier than IEFA, but charges a higher expense ratio (0.31% vs. 0.07%). Historically, institutional investors favored EFA for its liquidity, as the ETF now trades twice as frequently as IEFA. Yet IEFA’s 19 million shares traded daily is sufficient for many moderately sized insurers.


Table 1: Largest ETFs Owned By Insurance Companies

Ticker2019 Insurance Assets ($M)2018 Insurance Assets ($M)Asset Growth (%)Shares Change (%)

Source: NAIC via S&P Global Market Intelligence; data as of 12/31/2019


Some smart-beta U.S. equity ETFs were more popular than cap-weighted S&P 500 Index ETFs. SPDR S&P 500 ETF Trust (SPY) remained the largest ETF position for insurers in 2019, consistent with its broader ETF industry standing.

However, the number of SPY shares held declined 30% in 2019, higher than the 14% and 2.9% decline for the iShares Core S&P 500 ETF (IVV 304) and the Vanguard S&P 500 ETF (VOO), respectively, perhaps as insurers appreciated these ETFs’ lower expense ratios despite tracking the same benchmark.

In contrast to the selling in market-cap-weighted S&P 500 Index funds, insurers gravitated to the Vanguard High Dividend Yield ETF (VYM), a smart beta ETF focused on companies with above average dividend yields. VYM’s assets tripled to $1.1 billion, with a doubling in the number shares held by insurers.

Corporate bond demand by insurance companies focused on credit risk, not interest rate risk, in 2019. LQD remained the second largest ETF owned by insurance companies, but assets shrunk to $2.4 billion, a 19% decrease hurt by a 31% reduction in shares held.

Meanwhile, assets in HYG, which owns bonds rated BB or lower, rose 20% to $751 million, aided by a 5.5% increase in shares owned by insurers. Another popular fixed income ETF for insurance companies was IGSB, which nearly doubled in size to $469 million in 2019. IGSB incurs less interest rate risk than LQD, which was appealing to investors then concerned about rising interest rates.

Where Is The ETF Demand Coming From?
Nine of the 10 largest ETF owners in the insurance space experienced double digit asset growth in 2019. USAA owned $3.2 billion worth of ETFs at year end, up 95% from a year earlier, while Allstate and HCSC leapfrogged many peers with a doubling of their assets to $1.8 billion and $1.2 billion, respectively.

The lone firm to pare ETF exposure and remain in the top 10 was Liberty Mutual. The property and casualty group’s ETF assets declined to $1.2 billion, from $2.7 billion a year earlier. Outside of the top 10 fellow P&C companies, Kemper and Swiss Re also had double digit reductions in ETF assets in 2019.


Table 2: Largest Insurance Companies Owning ETFs

Company2019 ETF Assets ($M)2018 ETF Assets ($M)Growth %
USAA (SNL P&C Group)3,1511,61695
Allstate Corp (SNL P&C Group)1,756773127
NJM Insurance (SNL P&C Group)1,5011,17328
Northwestern Mutual (SNL Life Group)1,4141,15023
New York Life (SNL Life Group)1,3091,05924
Liberty Mutual (SNL P&C Group)1,2442,694-54
HCSC (SNL Health Group)1,242487155
GuideWell Mutual Holding Corp. (SNL Health Group)1,19289433
TIAA (SNL Life Group)1,10068261
FM Global (SNL P&C Group)83254453

Source: NAIC via S&P Global Market Intelligence; data as of 12/31/2019


To read the full S&P Dow Jones Indices report on Insurance company usage of ETFs in 2019, visit

Insurance companies are actively using ETFs in their general accounts, with some of the top firms gaining even more comfort in 2019. While there is ample room for growth, CFRA is particularly encouraged that institutional investors favor lower cost funds often used by advisors and retail investors, as insurers and others will keep liquidity strong for all.

In addition, growing demand will provide further economies of scale for the asset managers such as iShares, State Street Global Advisors and Vanguard to keep fund fees low. CFRA thinks ownership of ETFs by insurance companies remains in the early innings.

All of the views expressed in this research report accurately reflect the research analyst's personal views regarding any and all of the subject securities or issuers. No part of the analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. For more information, please refer to CFRA's Legal Notice at

Copyright © 2020 CFRA. All rights reserved. All trademarks mentioned herein belong to their respective owners.


Todd Rosenbluth is director of ETF and mutual fund research at CFRA, an independent research firm that acquired S&P Global Market Intelligence’s equity and fund business in October 2016. Follow him at @ToddCFRA.