US insurers boost ETF holdings to $39.3 billion in 2024

U.S. insurance companies increased ETF holdings to $39.3 billion in 2024, a 14% rise and the first increase since 2021, driven by net inflows and market gains, according to S&P Global. Property and casualty insurers lead in ETF usage, while mega-sized insurers drove most of the growth in 2024, increasing their ETF holdings by 30%. Despite this growth, insurance ETF holdings remain a small fraction of the overall ETF market and insurance general account assets, with fixed income ETFs and corporate bond ETFs favored over equity ETFs compared to the broader market.

Analysis

U.S. insurance companies increased their exchange-traded fund (ETF) holdings to $39.3 billion in 2024, a significant 14% year-over-year rise and the first such increase since 2021, driven by $2.3 billion in net inflows and market appreciation, according to an S&P Global study. This reverses declines observed in 2022 and 2023, although the three-year compound annual growth rate remains negative. Property and casualty (P&C) insurers maintain their lead in ETF utilization, with both P&C and life insurance companies contributing to the 2024 growth, while health insurers' ETF assets remained static. Notably, mega-sized insurance companies fueled this resurgence, boosting their ETF holdings by 30%, a shift from 2023 when smaller insurers were more active. Despite this growth, ETFs constitute a minor portion of the $10.4 trillion U.S. ETF market and the $13.1 trillion in insurance general account assets. Insurers' ETF portfolios show a preference for fixed income, with equity ETFs comprising 64% of their holdings (up slightly from 63% in 2023 but below the 79% long-term average and 79% in the broader market). Fixed income ETFs experienced mixed flows, including substantial Q4 outflows attributed to a single insurer, yet corporate bond ETFs, particularly investment grade and high yield, saw increased allocations. ETF trading volume by insurers surged by 38% in 2024, approaching 2020 peak levels, with P&C companies leading this activity. Geographically, half of insurance ETF assets are concentrated in companies domiciled in New Jersey, New York, Michigan, Illinois, and Wisconsin. While the variety of ETFs used by insurers expanded to 714, the number of insurance companies employing ETFs fell for the third consecutive year to 623, representing 35% of all insurers.

Key Decisions for Investors

• ETF providers should recognize the renewed appetite for ETFs among U.S. insurers, particularly the 30% AUM growth from mega-insurers, and focus on fixed income products, notably corporate bond ETFs, which align with current insurance sector preferences.
• Investors should monitor the dichotomy of rising total ETF AUM within the insurance sector against the declining number of insurer participants, as this may signal consolidation in ETF usage or specific hurdles for broader adoption among smaller entities.
• The 38% increase in ETF trading volume by insurers indicates a more active management approach; therefore, market participants should consider the potential for heightened liquidity demands and more dynamic allocation shifts within the insurance industry's preferred ETF segments.