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Cerulli reports US accounting changes encourage ETF usage


New research from Cerulli Associates finds that as more institutional investors see the benefits of using ETFs, many issuers are considering ways in which they can approach the channel.

Cerulli recommends that issuers in the US focus on non-profits, pension funds, and insurance general accounts. “Insurance general accounts continue to be particularly ripe for new allocations because of recent regulatory changes,” says James Tamposi, research analyst at Cerulli.
“The National Association of Insurance Commissioners (NAIC) recently changed its accounting guidelines, allowing insurers to record fixed-income ETFs as fixed-income securities, rather than as common stock holdings,” continues Tamposi. “Insurers can assign a more favourable risk-based capital charge to these investments, providing more flexibility elsewhere in the portfolio than would otherwise be the case had they been required to account for them as common stock holdings.”
“Another, more recent change in the NAIC’s guidelines permits insurers to use systematic value accounting, which allows them to calculate the value of bond ETFs by the cash flow of the fund’s underlying holdings,” explains Tamposi. “This change helps insurers meet risk and capital requirements, further reducing barriers to investing in fixed-income ETFs.”
Alexi Maravel, a director at Cerulli, adds, “ETF issuers should look to get ahead of this potential wave of new allocations.”

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