The Growing Strategic Role of ETFs in Insurance Portfolios

In recent years, amongst insurers, Exchange-Traded Funds have grown from (typically) being a tool for liquidity management to much broader instrument within the overall investment process. We spoke with State Street Investment Management to discuss how ETF usage amongst insurers has changed and where new opportunities might arise in the coming years.

Marcel Benjamin | Vice President | State Street Investment Management
marcel_benjamin@statestreet.com | Learn More >>

SAA: How has the role of ETFs in insurance portfolios evolved from a tactical liquidity tool to a strategic portfolio management solution?

State Street: Historically, insurers adopted ETFs primarily as liquidity management tools. They were often used as temporary placeholders for cash, helping the general account remain invested or achieve quick access to a certain beta exposure. ETFs met an important need while sourcing individual bonds, managing premium inflows and claim outflows, or navigating periods of market dislocation. Industry research consistently showed that liquidity, operational simplicity, and efficient implementation were the primary drivers of early ETF adoption among insurers.

Over the past decade, however, ETFs have evolved into strategic portfolio management instruments. Improvements in market depth, transparency, regulatory acceptance, and product breadth have expanded their role beyond tactical cash equitization. Insurers increasingly use ETFs to gain long-term exposure to core investment-grade bonds, equity sectors, and specialized market exposures while maintaining a level of flexibility that can be difficult to achieve through individual securities alone. According to S&P Dow Jones Indices, insurer holdings of ETFs increased 25% in 2025 to $49Bn, a record high. This reflects broader acceptance of ETFs as permanent portfolio allocations rather than temporary holdings.

Today, insurers use ETFs across multiple stages of the investment process, including strategic asset allocation, rebalancing, manager transitions, asset-liability management, and surplus portfolio construction. Bond ETFs such as the SPDR Portfolio Intermediate Term Corporate Bond ETF (SPIB), which holds more than 5,000 investment-grade corporate bonds across the intermediate (1-10yr) maturity spectrum, can serve as scalable portfolio building blocks that provide diversified exposure while preserving daily liquidity and transparency. Rather than replacing traditional bond portfolios, ETFs increasingly complement them by providing insurers with an additional toolkit for managing duration, credit exposure, liquidity, and capital deployment more efficiently.

SAA: What portfolio challenges are insurers solving with ETFs today, and where do you see the greatest growth opportunities over the next five years?

State Street: Today's insurers face a complex balancing act: generating attractive risk-adjusted income, managing liquidity, maintaining regulatory compliance, and responding to changing market conditions.

One of the most important use cases is efficient capital deployment. Insurers regularly receive cash from premiums, coupon payments, maturities, and portfolio rebalancing activities, yet sourcing individual bonds can take time. ETFs allow investment teams to remain invested while maintaining broad market exposure during that process. They are also widely used to facilitate portfolio transitions, manage duration targets, implement tactical views, and reduce operational complexity by consolidating exposure that might otherwise require many individual holdings. Transparency is another major benefit, as daily holdings disclosure supports risk monitoring and regulatory reporting.

The lines between traditional corporate debt and structured finance are blurring as issuers develop new financing structures and capital-recycling strategies. We believe the most effective framework combines corporate credit analysis with securitized asset expertise, uniting traditional issuer analysis, collateral assessment, cash flow modeling, and structural risk evaluation. This allows investors to develop a consistent language around risk, compare opportunities across asset classes, and identify where compensation is most attractive.

Looking ahead, we see the greatest growth opportunities in three key areas. First, US fixed income ETFs, with ~$2.7Tn in assets, will continue gaining market share as insurers become more comfortable using them for strategic credit and duration allocations. Second, active ETFs, which surpassed $2 trillion in assets for the first time in July, may see increased adoption as insurers seek differentiated sources of alpha and more flexible portfolio management solutions. Third, surplus account investing presents a significant opportunity, particularly for equity, sector, and factor-based ETFs.

The broader trend is clear: ETF adoption within insurance general accounts remains modest relative to the overall size of insurer balance sheets, suggesting significant room for growth. As insurers continue seeking scalable, liquid, and capital-efficient portfolio solutions, ETFs are likely to become an increasingly important component of insurance portfolio construction over the next five years.

SAA: As insurers navigate a higher-rate and increasingly complex investment environment, how can fixed income ETFs help improve portfolio flexibility, transparency, and operational efficiency?

State Street: While higher interest rates have created attractive income opportunities for insurers, they may have also increased the complexity of portfolio implementation. Investment teams must balance duration and credit risk while adapting to liquidity needs, evolving liabilities, and market volatility. Fixed income ETFs can help address these challenges.

ETFs provide immediate access to both broad and niche segments of the bond market. Instead of patiently sourcing individual securities, insurers can quickly adjust duration, move up or down the credit spectrum, or implement strategic views through a single trade. For example, insurers seeking to reduce duration risk can gain high-quality floating-rate exposure through the SPDR Bloomberg Investment Grade Floating Rate ETF (FLRN). Those seeking higher income from floating-rate assets with lower credit quality can access the bank loan market through the SPDR S&P Leveraged Loan ETF (LVLN) or the SPDR Blackstone Senior Loan ETF (SRLN).

Transparency is another key benefit. Unlike many pooled investment vehicles, State Street fixed income ETFs disclose holdings daily, enabling insurers to assess sector exposures, credit quality, ratings, and other portfolio risks. Finally, operational efficiency may be the most underappreciated benefit. A single ETF can provide exposure to thousands of bonds, reducing the burden of trading, settlement, monitoring, coupon payments, and security redemptions. For insurers managing large and complex portfolios, that efficiency can free investment and operations teams to focus on higher-value portfolio decisions. As insurers modernize portfolio construction in a more dynamic fixed income landscape, ETFs are increasingly serving as strategic tools that complement rather than replace traditional bond portfolios. Their combination of flexibility, transparency, and efficiency can support risk oversight while facilitating communication with regulators, rating agencies, and other stakeholders.

Source: Strategic Asset Alliance, State Street Investment Management. The information contained herein has been obtained from sources believed to be reliable, but the accuracy of information cannot be guaranteed.