Yield opportunities ranked most important factor driving asset allocation decisions among insurers

Written by Adam Cadle

04/04/2023

Global insurers have ranked increasing yield opportunities in the current environment as the most important factor driving asset allocation decisions (68%) for the first time in Goldman Sachs Asset Management’s latest survey, nearly triple the percentage of those who say they are decreasing risk due to concern with equity or credit losses (25%).

The firm’s survey, Balancing with Yield on the Inflationary Tightrope, revealed that more than half of global insurers (51%) plan to increase their allocation to private assets over the next 12 months. Across all asset classes, private corporate debt (41%) is the top asset class that insurers plan to allocate more to over the next year. Twenty-nine per cent of respondents plan to allocate more to private equity, and 28% plan to increase their allocation to infrastructure equity and infrastructure debt.

In contrast to 2022, net 28% of insurers plan to significantly increase duration exposure, consistent with the market pricing in rate cuts following a year of intense hiking.

Hopes of transitory inflation are waning, as 81% of insurers believe inflation will remain through the medium (2-5 years) or long term (5-10 years). Insurers cite deglobalisation (44%) as the top factor driving structurally higher inflation, followed by energy disruptions (33%).

Most insurers (82%) believe an economic recession in the US will occur within the next three years. Views have carried over from the 2022 survey, in which 65% of respondents said they felt an economic recession was forthcoming in the next three years.

Despite recession risk and rising geopolitical tensions, 29% of global investors plan to increase overall investment risk in their portfolio. A potential renaissance for fixed income is underway as 34% of insurers plan to increase their allocation to US investment-grade corporates in 2023. In a reversal from the prior years, credit quality deterioration was cited as a primary investment risk by insurers (39%). Conversely, low yields were the least concerning investment risk noted by insurers (10%) for 2023 given the persistent elevated-rate environment.

ESG factors continue to be at the forefront of portfolio considerations, with 90% of respondents considering these factors throughout their investment process.

The survey incorporated the views of 343 Insurance company CIOs and CFOs representing over $13trn in global balance sheet assets. Their responses were collected from February 1 - 17, 2023.

Related Articles