Survey Finds the Most Pessimism Among Insurers in Four Years
NEW YORK, April 22st, 2015 – Goldman Sachs Asset Management (GSAM) released its annual insurance survey, “Too Much Capital, Too Little Return,” which finds that while insurers believe the industry is well capitalized, finding attractive investment opportunities is increasingly challenging in an investment environment characterized by negative yields, tight spreads, and high equity prices.
Insurers demonstrated the greatest amount of pessimism since GSAM began conducting the survey four years ago.
“Insurers are concentrating on finding new investment opportunities which are sparse because yields still remain at low levels, and insurers are not anticipating a meaningful increase in rates this year,” said Michael Siegel, GSAM’s Global Head of Insurance Asset Management.
“Nonetheless, one-third of insurers globally intend to increase overall portfolio risk. Insurers believe equity asset classes will outperform credit assets and they are looking to increase allocations to less liquid, private asset classes.”
EMEA and Pan Asian insurers demonstrated a stronger risk appetite compared to their peers in the Americas. EMEA-based insurers have increased their risk appetite over the years, while Pan Asian insurers are looking to increase credit and equity market risk. Americas-based insurers which have demonstrated a strong risk appetite over the years are now comfortable with their risk levels and are planning to maintain overall risk.
All eyes on U.S. growth
Insurers singled out the pace of US economic growth as the greatest macroeconomic risk. CIOs and CFOs believe the dollar will continue to strengthen due to a stronger economy and relatively higher interest rates.
As yields moved lower in 2014 and central banks expanded “QE” programs, insurers have lowered their expectations around rates.
Additional key findings of this year’s survey include:
- Insurers globally intend to increase allocations to less liquid, private assets. They intend to increase allocations to commercial mortgage loans, infrastructure debt, private equity and middle market loans. Consistent with their return expectations, insurers intend to decrease allocations to highly liquid assets such as cash and short-term instruments and government and agency debt.
- Equity asset classes are expected to outperform credit asset classes. Insurers anticipate that the highest returning asset classes will be private equity, US equities, and European equities this year.
- Despite years of unprecedented global monetary easing, insurers have become more concerned about deflation in the near term due to slow global growth and lower commodity prices. Insurers anticipate commodities will be amongst the lowest returning asset classes this year. Insurers have pushed out their concerns regarding inflation to the medium term.
- Insurers are looking to outsource both core and niche asset classes to third party asset managers. They intend to outsource hedge funds (26%), emerging market equities (23%), US investment grade corporates (23%) and private equity (22%).
GSAM Insurance Asset Management Survey partnered with KRC Research, an independent third party research firm, to conduct the 2015 survey from February 3 – 25, 2015. The global online survey received 267 responses, including 208 CIOs, 48 CFOs and 11 individuals who serve as both CIO and CFO. The global respondent base included Life, Property & Casualty, Multi-Line, Reinsurance, and Health insurers.
This study represents insurers with over $6 trillion in global balance sheet assets. GSAM currently oversees over $160 billion in insurance assets as of December 31, 2014 and is ranked among the top 5 insurance asset managers worldwide.* GSAM’s insurance capabilities include partial to full outsourcing solutions involving fixed income strategies, alternative investments and equities.
The group offers a suite of advisory services including asset liability management, strategic asset allocation, capital-efficient investment strategies and risk management. For more information, please visit here.
Goldman Sachs Asset Management is the asset management arm of The Goldman Sachs Group, Inc. (NYSE: GS), which oversees $1.15 trillion in assets under supervision as of March 31, 2015. Goldman Sachs Asset Management has been providing discretionary investment advisory services since 1988 and has investment professionals in major financial centers around the world.
The company offers investment strategies across a broad range of asset classes to institutional and individual clients globally. Founded in 1869, Goldman Sachs is a leading global investment banking, securities and investment management firm that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. *P&I Online, The Largest Managers of Total Insurance Assets. Results as of March 31, 2014.