Insurers have become more pessimistic about the current investment environment, with 50% of those polled in a survey saying they felt opportunities are getting worse, up from 36% last year.
This was a main finding in Goldman Sachs Asset Management (GSAM)'s seventh annual global insurance survey, “Foggier as We Climb”.
The survey found that in response to this increasing concern, more respondents (17%, up from 10% last year), are looking to de-risk their portfolios rather than increase risk (16%, down from 26% last year). This is the first time since the survey’s inception in 2011 that more respondents say they are looking to de-risk rather than increase risk.
“2018 marked the return of market volatility for the first time in nearly a decade, rattling markets and leading insurers to question the current investment landscape,” said Mr Michael Siegel, GSAM’s Global Head of Insurance Asset Management. “While low returns have been the main concern in the insurance industry for the last several years, the changing economic environment is leading to more focus on protecting portfolios in the event of a downturn.”
To conduct the survey, GSAM interviewed 300 CIOs and CFOs at global insurance companies, representing more than US$10 trillion in balance sheet assets and more than one-third of the industry’s global assets. By region, the global survey received 168 responses from the Americas, 77 from EMEA and 55 from Asia Pacific.
Notable highlights from the survey include:
- Concern for the first time in several years over rising inflation and interest rates; 85% of insurers agree inflation is a concern over the next five years and 65% predicted the 10-Year US Treasury yield will exceed 3% by the end of 2018
- Respondents maintaining a positive equity market outlook despite economic uncertainty, with 77% believing S&P 500 Index returns will be positive this year
- Growing insurer interest in higher returning, less liquid asset classes such as private equity, infrastructure debt, commercial mortgage loans and middle market corporate loans and a movement towards floating rate assets
- ESG continuing to gain interest among insurers, with 40% taking it into account when making investments, up from 32% last year
- Big data and artificial intelligence on the rise; 15% of global insurers currently use it in their portfolios, while an additional 40% are considering implementing it in the future
- Cryptocurrencies currently do not play a role in the investment portfolio, yet a third of companies feel it is too early to determine if there is a role for cryptocurrencies
- Insurers are less worried about political events and a China slowdown impacting the investment landscape; instead, a top concern this year is the likelihood of a slowdown or recession in the US followed by equity and credit market volatility.
The global respondent base included life, property & casualty, multi-line, reinsurance and health insurers.