Seeking yield in a time of prolonged low interest rates, insurers say they will diversify beyond traditional fixed income into higher return asset classes including high-yield debt, real estate, and emerging market debt. In addition to seeking higher returns, insurers are focused on investing more in their risk management infrastructure in the near term. These were among the key findings of the GSAM Insurance Asset Management Insurance CIO Survey, “ Seeking Return in an Adverse Environment” (available at www.gsam.com/Insurance-CIO-Survey). GSAM Insurance Asset Management retained independent, third-party research firm KRC Research to gather insight into the investment sentiment of CIOs and senior investment decision-makers at 152 insurers globally, representing $3.8 trillion in invested assets. “Between low rates, a changing regulatory environment and significant market volatility, it is clearly challenging for insurers to produce strong risk-adjusted returns,” said Michael Siegel, GSAM’s Global Head of Insurance Asset Management. “Our study shows that CIOs are addressing the adverse investment climate by rethinking asset allocation, and in many cases, diversifying into new asset classes while also enhancing their risk management systems.” Key findings of the survey include 1:
- The near-term investment outlook is bleak, with most insurers anticipating investment opportunities will deteriorate or remain the same in the next year.
- The sovereign debt crisis in Europe remains the predominant macroeconomic risk that concerns insurers.
- Insurers consider the prolonged low-yield environment to be the greatest investment risk to their portfolios, resulting in increased interest in higher-yielding asset classes.
- Globally, 26% of insurers expect to increase overall investment risk, while 14% expect to reduce risk. Increased diversification and better risk management systems should mitigate the impact of higher risk investment strategies. Insurers intend to increase allocations to high yield (36%), US investment grade corporates (35%), real estate (34%), emerging market debt (31%), private equity (27%), bank loans (25%) and mezzanine debt (23%).
- The most significant portfolio reductions are planned for cash/short-term instruments (39%) and European financial credit (24%).
- Over a quarter of respondents in the Americas and EMEA anticipate that deflation will be a concern in the next year. More than half of respondents across all markets expect inflation risk will be a concern in the next 2-3 years.
GSAM Insurance Asset Management manages $125 billion in insurance assets as of June 30, 2012 and is ranked among the top 10 insurance asset managers worldwide (based on insurance assets as of year-end 2011; source: Insurance Asset Manager). The group has more than 50 dedicated professionals focused on client relationship management, fixed income portfolio management, insurance advisory services and accounting policy. GSAM’s insurance capabilities include partial to full outsourcing solutions involving traditional fixed income strategies, alternative investments and equities. The group also offers a suite of advisory services including asset liability management, strategic asset allocation, capital-efficient investment strategies and risk management.Goldman Sachs Asset Management is the asset management arm of The Goldman Sachs Group, Inc. (NYSE: GS), which manages $836 billion as of June 30, 2012. Goldman Sachs Asset Management has been providing discretionary investment advisory services since 1988 and has investment professionals in all 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. 1 These findings represent an aggregation of responses from respondents of the GSAM Insurance Asset Management Insurance CIO Survey and does not reflect or represent the views or opinions of Goldman Sachs. 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