At MetLife Inc., the largest U.S. life insurer, “we use ETFs as temporary investments for quick entries and exits into the market, and we will continue to do so,” said John Calagna, a spokesman for the company.
In addition, foreign insurers and small-to-medium-sized U.S. firms may find the funds an easier and cheaper way to manage assets, Goldman’s Siegel said.
Hurdles Remain
There still may be significant hurdles to the increased use of ETFs by insurers because they may be discouraged by regulatory barriers, or actuaries may have difficulties running the funds through their models when testing the strength of reserves, Earley said.
It’s still unclear to many companies how the rules may play out, said Mark Snyder, who helps manage $90 billion of insurer funds at JPMorgan Chase & Co. While it makes sense for insurers to use ETFs to manage cash opportunistically, many are more comfortable with traditional bonds so that the cash flows provide a good match for liabilities.
That’s something S&P Global Ratings said it will be looking to make sure of -- that ETFs are being acquired in so that they’re in line with the length of contracts tied to mortality, cars or hurricanes, whichever protection the insurer is selling.
Part of the reason BlackRock’s Penzner thinks his firm’s goal is reasonable is the sheer size of the insurance industry. Compared to $5 trillion, $300 billion isn’t much.
“A lot really depends on new continued engagement and acceleration, and conversations with the large insurers,” he said.
This article was provided by Bloomberg News.