The iShares U.S. Insurance ETF (IAK): A Strategic Buy After a Period of Underperformance

The iShares U.S. Insurance ETF (IAK) has spent much of the past year in the shadows of a volatile market, underperforming its broader financial sector peers. But now, as macroeconomic conditions shift and key holdings in the fund deliver standout results, IAK is emerging as a compelling opportunity for investors seeking downside protection and long-term growth. Let's break down why this ETF is primed for a rebound—and why it deserves a spot in your portfolio.

Valuation: A Sector Trading at a Discount, Not a Premium

The first question investors must ask is: Is IAK undervalued? At first glance, the ETF's price-to-earnings (P/E) ratio of 12.16 appears higher than the ETF Database Category Average of 9.49. But this metric tells only part of the story. When compared to its FactSet Segment Average of 10.88, IAK is actually trading near the middle of its peer group. This suggests that while the insurance sector isn't screaming “cheap” by traditional measures, it's far from overvalued—especially when considering the macro tailwinds at play.

The price-to-book (P/B) ratio of 1.65, in line with both the category and segment averages, further reinforces this point. Insurance companies, by their nature, are capital-intensive businesses, and their book values are often conservative. Yet IAK's valuation metrics suggest that investors aren't paying a premium for its exposure to a sector that has historically outperformed during periods of rising interest rates and inflation.

Momentum: Earnings Powerhouses Drive Sector Strength

The insurance sector's recent momentum has been nothing short of impressive. Take Travelers Companies (TRV), IAK's third-largest holding. In Q2 2025, TRV delivered a stunning 183% year-over-year jump in net income to $1.5 billion, driven by lower catastrophe losses, strong underwriting discipline, and a 4% increase in net written premiums. Its combined ratio—key to assessing insurance profitability—improved by 9.9 points to 90.3%, a sign of operational excellence.

Similarly, Progressive (PGR), the ETF's top holding, has been a standout. PGR's Q2 earnings report showed a 84% surge in EPS to $4.88, with operating revenues up 19.5% to $42.2 billion. The company's underwriting efficiency, as measured by a 570-basis-point improvement in its combined ratio to 86.2, underscores its ability to adapt to a changing claims environment.

These results aren't anomalies. The insurance sector as a whole has been benefitting from disciplined pricing, improved loss ratios, and the ability to leverage higher-yielding investments. For IAK, which holds a concentrated portfolio of 59 stocks but is heavily weighted toward industry leaders like TRV and PGR, this momentum is a tailwind.

Macro Tailwinds: Rising Rates and Inflation Favor Insurers

The broader macroeconomic environment is a critical catalyst for IAK's potential. Insurance companies are uniquely positioned to thrive in a high-interest-rate world. Their business model—collecting premiums and investing them over time—means that rising rates directly boost returns on invested assets.

Consider that IAK's top holdings, including Chubb (CB) and Travelers, have seen their investment income grow significantly. For example, TRV's net investment income rose 6% after-tax in Q2 2025, while PGR's net investment income jumped 29.3%. As the Federal Reserve continues to hold rates near multi-decade highs, this trend is likely to persist.

Moreover, inflation has historically been a friend to insurers. As claim costs rise, insurers can adjust premiums, improving margins. The sector's ability to pass on costs to customers, combined with disciplined underwriting, has created a virtuous cycle of profitability.

Technical Setup: A Correction Creates a Buy Opportunity

From a technical perspective, IAK has been in a corrective phase after a strong 2024. Year-to-date, the ETF is up 2.35%, but its 12-month total return of 13.53% lags behind the broader financial sector. This underperformance has brought valuations to a more attractive level.

The ETF's recent pullback has created a favorable risk-reward profile. With the insurance sector trading at a discount to its 5-year average P/E of 10.88, and key holdings like TRV and PGR showing resilience, IAK is in a position to outperform as market sentiment improves. Investors who buy into the ETF now are effectively purchasing a basket of well-capitalized, earnings-driven companies at a discount to their intrinsic value.

Actionable Insights for Investors

For those seeking downside protection in a volatile market, IAK offers a unique combination of defensive characteristics and growth potential. Here's how to position for it:
1. Buy on Dips: With valuations near multi-year lows relative to peers, dips in IAK present buying opportunities. Consider dollar-cost averaging to mitigate timing risks.
2. Focus on Holdings: Monitor earnings reports from TRV, PGR, and CB. These three companies account for nearly 40% of IAK's assets, so their performance will heavily influence the ETF's trajectory.
3. Hedge Against Volatility: IAK's low correlation to the broader market makes it an effective hedge. Allocate 5–10% of your portfolio to the ETF to balance risk while capitalizing on sector-specific growth.

Conclusion: A Strategic Buy for the Long Term

The iShares U.S. Insurance ETF (IAK) is no longer a sidelined play. With valuations in check, earnings momentum accelerating, and macroeconomic tailwinds in place, it's a strategic buy for investors looking to capitalize on the insurance sector's renaissance. As interest rates stabilize and insurers continue to leverage their capital advantage, IAK is poised to deliver both defensive resilience and upside potential.

In a market where uncertainty reigns, IAK offers a rare combination of safety and growth. Don't let the ETF's recent underperformance blind you to its long-term promise. This is a sector on the rise—and the time to act is now.