Based on our analysis of data from insurance company statutory annual filings, we estimate the U.S. domestic insurance industry increased its collective general account holdings of ETFs from $3.9B at year end 2005 to $10.5B at the end of 2012. There are approximately 500 insurance companies with 650 total entities that use ETFs.2
A typical insurance company’s primary investment objective is to manage the economic risks of its liabilities. Generally, insurers invest in a fixed income-only portfolio that is duration matched to the expected liability cash flows. iShares Fixed income ETFs can help insurance companies manage challenges they may face when investing for the general account. Some benefits of using ETFs include:
Put cash to work quickly, and then add bonds strategically
Declining bond liquidity makes investing cash balances more challenging; iShares ETFs can provide quick beta exposure to help minimize execution risk.
With iShares ETFs providing short-term beta exposure, a manager can be patient and opportunistically add bonds.
This greater flexibility provides an opportunity to enhance yield and lower transaction costs while increasing liquidity.
Access hard-to-reach markets
iShares ETFs open up new asset classes where portfolio managers can invest to enhance portfolio construction.
U.S.-listed funds provide diversified, one-trade exposure to non-U.S. corporates or sovereigns.
iShares ETFs also provide exposure where PMs may not have research coverage such as emerging market debt or CMBS.
iShares ETFs generally offer price improvement as the ETF is often less expensive to trade than the underlying securities of the respective index.
With 61 iShares fixed income ETFs, investors can customize exposure based on desired credit, yield and duration characteristics.
56 iShares ETFs have NAIC designations.