New rules from the National Association of Insurance Commissioners (NAIC) could pave the way for insurance companies shifting more than $300 billion into fixed income ETFs over the next five years, according to BlackRock.

Blackrock expects $300bn of the $5tn currently held by insurance companies to flow into bond ETFs in the next five years.

The change by the NAIC, due to come into effect by 2018, will reduce capital requirements on insurers to hold fixed income ETFs in their portfolios. Previously, bonds ETFs had the same capital requirements as more volatile equity funds.

There is currently more than $750bn in US-listed bond ETF assets, so a £300bn boost would represent a 39% increase. This is still a fraction of the $5 trillion of assets under the control of US insurance companies.

Insurers must still get approval from the regulator for each individual security held in a fixed income ETF for the new rules to apply.

However, the use of ETFs could reduce the premium insurance companies receive from investing in longer-dated, illiquid or complicated fixed income assets that are typically avoided by retail investors. For this reason, it is possible that ETFs might be used more as a temporary investment to provide liquid capital on requirement rather than a wholesale substitute for physical bonds.

The iShares Core US Aggregate Bond ETF (NYSE Arca: AGG) is the largest bond ETF in the world, with AUM of $46bn and a total expense ratio (TER) of 0.05%.

The iShares Core Euro Corporate Bond UCITS ETF (LON: IEAC) is the largest UCITS compliant ETF, with $7.4bn in AUM and a TER of 0.20%.