How Insurers Have Used ETFs to Manage Equity Exposure

U.S. insurance companies are bracing for another year of uncertain regulatory pressures and macroeconomic risks, adapting with caution without losing sight of opportunities in private markets. Most, however, are underutilizing the critical benefits that exchange-traded funds offer to their general account portfolios, including hedging equity and inflation exposures, sources say.

The latest sector financial data from Standard & Poor’s showed U.S. insurers held nearly $8.5 trillion in assets in their general account portfolios as of December 31, 2024, of which $39.3 billion was held in ETFs.

Only 20% of insurance general accounts use ETFs as a core portfolio holding, according to Cerulli Associates’ “The State of U.S. Retail and Institutional Asset Management 2024.”

That percentage is too small, according to a paper by Meta Curry, head of insurance strategy at State Street Investment Management. “There is ample room for insurance assets held in ETFs to grow.”

Insurers remain primarily fixed-income investors focused on rolling into higher-yielding fixed-income assets, says Brett Horn, a senior equity analyst at Morningstar, and equity is generally a small portion of the portfolio.

“I’m doubtful recent volatility would lead insurers to materially alter their allocations,” Horn says, going on to add that many insurers are using private equity funds as a replacement for publicly traded stocks, which limit exposure to equity market volatility.

Adoption Trends

Fixed-income investments typically account for 70% to 80% of insurers’ general account asset allocation, Curry says. Yet the bulk of insurers’ ETF investments are not in fixed-income ETFs.

Equity ETFs are available and used in nearly all market segments to reduce—even eliminate—the need for outsourced mandates, she explains. Insurers’ equity ETF investments represented 64% of ETF allocations at year-end 2024 , compared with an average of 68% of the total between 2015 and 2024, according to S&P.

While corporate bonds, predominantly used for investment-grade exposure, dominate fixed-income ETF holdings, according to S&P, the amount and percentage of fixed-income ETFs designated for systematic value continues to decline.

Fixed-income ETFs proliferated across insurers’ general accounts after the National Association of Insurance Commissioners allowed its bond-like securities valuation treatment for accounting purposes in 2017. By year-end 2018, 62% of participants in a Greenwich Associates survey of 52 life and property and casualty insurers, with approximately $1.9 trillion in collective AUM, used ETFs to optimize asset allocation, eliminate cash friction and construct low-cost core equity portfolios.

Hurdles and Habits

Curry lists market structure, accounting asymmetries and the capital treatment hurdles insurers face when using fixed-income ETFs in their portfolios among the reasons why insurers’ preference for equity ETFs will continue in 2026.

Risk-based capital charges and specific regulatory criteria required to qualify for bond-like treatment are key challenges.

“It is becoming increasingly … difficult to manage large, index-based portfolios at a lower cost than ETF fees, especially if the goal is to offset fees with securities lending income,” Curry explains, so the asset management industry is working to alleviate these hurdles. “Buying more fixed-income ETFs will require a behavioral shift by insurance asset managers who have spent decades trading individual bonds. ETF adoption by insurers is poised to increase alongside outsourcing that allows insurers to scale and rebalance portfolios dynamically. The benefits of fixed-income ETFs compared to individual bonds are significant.”

Uneven Participation

Annual ETF investments fluctuate with inflation. Sector ETF use, for instance, decreased by almost 50% (for the second year in a row) as exposure to financials and technology sectors declined, according to S&P.

Property and casualty insurers invest in ETFs to feed their constant need for liquidity, facilitated by typically broad-based liability profiles and more flexible equity exposure investment guidelines than life and health insurers.

According to State Street, P&C insurance general accounts have consistently used State Street Investment Management’s Select Sector SPDR Funds over the past 10 years. These ETFs allow focused investment in the S&P 500 via the 11 Global Industry Classification Standards sectors.

At year-end 2024, P&C insurers held more than $400 million of Select Sector SPDR Funds. Launched in 1998, the funds are the largest (50% larger than the next competitor) and the most liquid of sector ETFs, with more than $317 billion in total holdings, according to State Street.

On average, P&C insurers had approximately 5% of equity ETF assets invested in Select Sector SPDR Funds. Since 2015, 198 P&C insurers have owned at least one of the original 11 Select Sector SPDR Funds.

New Kind of ETF Class

Recently, the Securities and Exchange Commission approved the use of dual-share-class funds, the use of ETF share asset classes in existing mutual funds.

“Tax efficiency, holdings transparency, the ability to have intraday pricing transparency and liquidity while the markets are open, and the ability for market makers to create or redeem ETF shares when market demand requires it,” are key positives, Curry says. “The ETF wrapper has many benefits over the mutual fund wrapper.”

As important as tax benefits, she notes, for many other than the very largest insurers, ETFs can provide great access to less liquid asset classes like leveraged loans, private credit, emerging markets debt and equity in a diversified and scalable way, classes they may not be able to access with their own investment teams.

Since insurers already actively use equity ETFs in their general accounts, Curry says she does not expect the SEC’s approval will create “any great impetus for insurers to buy more ETFs.” To the extent that an insurance general account holds mutual funds, Curry argues, “it would make sense over time for insurers to transition to the ETF share class for the aforementioned reasons.”

A Global Rethinking of Strategies

BlackRock’s annual Global Insurance Survey, conducted from July through September, found 85% of insurers are open to or actively planning a shift toward more versatile asset management to navigate market volatility, regulatory compliance and long-term competitiveness.

“We’re witnessing an accelerated transformation, particularly among life insurers, toward long-term private capital deployment” in private credit and infrastructure, said Charles Hatami, BlackRock’s global head of the financial and strategic investors group and co-head of the global partners office, in a statement.

The survey, Opportunity Amid Uncertainty: Insurers Globally Embrace a More Flexible Approach, revealed that only 12% of respondents said they planned to increase their overall investment risk exposure in 2025, while 58% said they intend to maintain current levels and 30% said they will increase private market allocations.

Inflation was the top risk concern for 63% of the participating 463 senior executives from 33 markets (of which, 29% were from North America), representing approximately $23 trillion in investable AUM. Capital management priorities included utilizing reinsurance sidecars (67%) and increasing usage of third-party capital (54%).

A New York Life Investments commentary noted that insurers’ investments contemplate tariffs and supply-chain re-globalization trends that are well underway, regardless of current policy. In 2025 so far, insurance exposure management could not rely on defensive-versus-cyclical strategies and instead focused on large-cap stocks, which tend to perform better than cyclical equities and small caps.

Insurers’ 2025 story “is one of caution amid volatility, but also of conviction in the long-term opportunities” offered by private markets, said Mark Erickson, a global insurance strategist in BlackRock’s financial institutions group.