2 ETFs in the insurance sector that could benefit from higher rates

  • The US Federal Reserve has raised the benchmark interest rate again
  • Insurance companies invest in fixed income securities
  • They therefore generally benefit from the rise in interest rates.

On July 27, the (Fed) raised the benchmark interest rate by an additional 75 basis points in an increased effort to lower the level of the US. The publication after the meeting stressed that “the Committee is firmly committed to bringing inflation back towards its target of 2%”.

Rising rates typically impact many industries, including the insurance sector. While it is difficult to generalize the effects of these rates across an entire industry, many insurers are taking advantage of the increased rates. A recent study by McKinsey reminds us that the persistence of low interest rates over the past decade has represented a challenge for the growth of the insurance sector.

Most insurers allocate a portion of the insurance premiums collected to fixed income securities, so they generally benefit from the rate increase. Despite rising costs due to inflation, they can still increase their profits.

In 2021, the number of net insurance premiums in the United States reached $1.4 trillion. It is therefore an essential industry for the economy.

Last year, the global insurance market was worth approximately $5.38 trillion. Emerging markets will likely continue to provide significant growth for the industry.

1. iShares US Insurance ETF

  • Current price: $81.04
  • 52 week range: $76.22 – $93.64
  • Dividend yield: 1.95%
  • Expense ratio: 0.42% per year

The first ETF we’re going to look at is the iShares US Insurance ETF (NYSE:), which invests in US companies that offer life insurance, property and casualty insurance, and comprehensive insurance. The fund was launched in May 2006 and has net assets of $327.8 million.

IAK, which follows the index. has 57 positions. Regarding the breakdown by sub-sector, we see damage insurance with 54.85%, life and health insurance with 24.45%, multi-line insurance with 11.08%, and brokers insurance with 7.33%, among others.

More than 60% of the portfolio is in the top 10 stocks, which makes IAK a concentrated fund. These include Chubb (NYSE:), Progressive Corporation (NYSE:), MetLife (NYSE:), American International (NYSE:), Travelers Companies (NYSE:) and Arthur J Gallagher & Co (NYSE:).

IAK is currently down about 3% this year but remains up more than 6% over the past 12 months. We see P/E and P/E ratios of 8.89x and 1.30x, respectively. We think there could be gains in many ETF insurers in the coming months.

2. SPDR S&P Insurance ETFs

  • Current price: $37.72
  • 52 week range: $35.74 – $42.84
  • Dividend yield: 1.94%.
  • Expense ratio: 0.35% per year

Next is the SPDR S&P Insurance ETF (NYSE:), an equal weight fund that invests in US insurers. It began to be traded in November 2005.


KIE, which tracks the performance of the S&P Insurance Select Industry Index, has 52 positions. The property and casualty insurance share has the largest share, with 44.38%. Next come life and health insurance (26.15%), insurance brokers (14.68%), reinsurance (8.78%) and multi-line insurance (6.01%).

The top 10 holdings in the portfolio represent about a quarter of the $518.6 million in net assets. Trupanion (NASDAQ:), Brown & Brown (NYSE:), Aon (NYSE:), Arthur J. Gallagher, Globe Life (NYSE:), Kinsale Capital Group (NYSE:), and Selective Insurance Group (NASDAQ:) are among the most important names in the fund.

KIE has lost around 6.5% of its value since January and is almost flat on last year. The P/E and P/B ratios are 11.12x and 1.10x. Readers interested in an equally weighted insurance fund should research KIE further.

Disclaimer: As of the date of publication, Tezcan Gecgil, Ph.D., had no positions in the securities mentioned in this article.

Leave a Comment