BlackRock Sees Windfall From Insurers After New ETF Rules

Change in the rules on how insurers price bond ETFs should fuel ETF demand.

Reviewed by: Trevor Hunnicutt
Edited by: Trevor Hunnicutt

New York (Reuters) – BlackRock expects $300 billion in new money from insurers to flood into the already-booming bond exchange-traded fund sector over the next five years, a spokeswoman said on Tuesday, following a move by regulators to adjust some requirements on how the investments are valued.

A National Association of Insurance Commissioners working group in April modified requirements on how insurers can record some bond ETFs for accounting purposes.

A group of ETFs already identified by the NAIC can qualify for a more favorable accounting treatment similar to that accorded bonds if they meet certain requirements. In some cases, insurers will be able to calculate a bond ETF's value based on the cash flows of the bonds held by the fund.

‘Systematic Value’ Accounting

That switch to a "systematic value" accounting treatment is a potentially big shift within the conservative world of asset management at insurance companies.

Insurers can also make the calculations using the funds' fair value, a potentially more volatile measure. Previously, those ETFs would typically have been valued based on what the funds cost.

"This allows companies not to have the volatility of fair value if they're willing to do the work to calculate systematic value," said Jean Connolly, a managing director who tracks NAIC developments for PwC, an accounting and professional services firm.

Some insurers said the bondlike accounting technique would help them more easily meet their own risk and capital requirements.

BlackRock Helped Redraft Rules

BlackRock, the world's largest asset manager and the largest ETF provider under its iShares brand, is eager to get its ETFs used more often and by more investors. It helped design the new accounting methods during the NAIC's four-year process to redraft its rules.

Insurers have been an important target for BlackRock's growth strategy because they invest billions in bonds that have become harder to trade, at low cost, for smaller investors.

U.S.-based bond ETFs attracted record cash last quarter, according to researcher Morningstar, and BlackRock's iShares unit took in $4 in $10 of that money.

Insurers that want ETFs to be eligible for the new systematic value treatment must designate them by the end of the year.


Trevor Hunnicutt is a staff writer for Reuters.