Goldman Sachs Asset Management Study Shows Insurance CIOs Look To Diversify In Light Of Weak Market Outlook

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.

Methodology

These results are from the 2012 GSAM Insurance Asset Management Insurance CIO Survey which KRC Research conducted online between May 1 and May 23, 2012. The survey received responses from 152 global senior investment professionals identified by GSAM and invited to participate in the survey. KRC Research compiled and analyzed all data included in this report.

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