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Insurance ETFs Languish in Low-Rate Environment


Exchange traded funds that track the insurance sub-sector have underperformed the broader financials sector and equity market, enduring weaker returns under depressed interest rates.

The SPDR KBW Insurance ETF (KIE) , which provides exposure to U.S. companies that offer life, property, casualty, full line insurance and reinsurance, has gained 2.5% year-to-date. Meanwhile, the S&P 500 Financials sector is up 4.0% and the broader S&P 500 has gained 6.5% so far this year.

“My message to Mr Carney, Mr Draghi and Mrs Yellen is please stop ruining the reinsurance [and insurance] industry,” Denis Kessler, chief executive of Scor, the world’s fifth largest reinsurer by premium value, said in a Financial Times article. “Enough is enough.”

Low rates depress returns on fixed-income assets that insurers use in their investment portfolios, a traditionally important source of profits, along with underwriting.

Additionally, monetary policies have also increased competition in the industry. Specifically, reinsurers, which help insure insurers, are seeing premiums drop as income-hungry investors push down yields on debt securities like catastrophe bonds.

“We are the collateral victims of the monetary policy which has been designed to help governments and banks after the financial crisis,” Kessler added.

The SPDR Insurance ETF follows a more equal-weight methodology, with 2.1% in CNO Financial (CNO), 2.1% in MetLife (MET) and 2.1% in Arthur J. Gallagher (AJG). Along with broad insurance exposure, the ETF includes a 13.9% weight toward reinsurance firms. KIE has a 0.35% expense ratio. [Insurance ETFs Love Rising Rates]

Investors can also take a look at other insurance ETFs, including the iShares US Insurance ETF (IAK) , PowerShares KBW Insurance Portfolio (KBWI) and PowerShares KBW Property & Casualty Insurance Portfolio (KBWP) .

The iShares Insurance ETF tracks large insurers like American International Group (AIG) 14.0%, MET 11.1% and Prudential Financial (PRU) 7.3%. This offering does not track reinsurance firms. IAK has a 0.46% expense ratio.

KBWI has a more focused exposure to the insurance industry, including a hefty weight toward property & casualty insurance at 66.6%, along with a 22.0% tilt toward reinsurers. Top holdings include Allstate (ALL) 9.3%, Travelers Cos Inc (TRV) 8.1% and Progressive (PGR) 7.4%. The ETF has a 0.35% expense ratio. [Evaluating Insurance ETFs]

KBWP takes a broader approach, with property & casualty insurers at 35.6% of the portfolio, followed by life & health insurers 32.5%, insurance brokers 12.0%, multi-line insurance 9.6%, asset management/banks 4.4%, thrifts & mortgage finance 4.1% and reinsurance 1.8%. Top holdings include TRV 8.7%, Marsh & McLennan (MMC) 8.0% and Aflac (AFL) 7.4%. The ETF has a 0.35% expense ratio.

For more information on the insurance sector, visit our insurance category.