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April 24, 2019 | Press Releases

Global Insurers Continue to Commit Capital in Light of Concerns Around an Economic Slowdown

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Insurers Selectively Taking Risk Amid Increased Volatility and Slowed Global Growth

NEW YORK/LONDON/HONG KONG/SYDNEY/TOKYO, April 24, 2019 – Goldman Sachs Asset Management (GSAM) released the findings of its eighth annual global insurance survey, “Cautiously Opportunistic,” revealing that the majority of insurers continue to commit capital in light of rising concerns about a global economic slowdown.

Slowing global growth and the reintroduction of market volatility set the backdrop for this year’s survey, which found heightened credit cycle concerns, with 85 percent of respondents indicating they believe we’re in the late stage of the cycle (up from 34 percent last year).  Eighty-two percent of respondents believe the US economy will enter a recession in 2020 or 2021, while only two percent predict a recession in 2019.

“Insurers predict a US recession is coming, just not this year,” said Michael Siegel, GSAM’s Global Head of Insurance Asset Management. “As a result, they are continuing to commit capital but are more selective in the risks they are taking. Insurers plan to continue the recent trend of allocating to less liquid asset classes including private equity, infrastructure debt and middle market loans. Globally, insurers continue to move out of local government debt and into the US and European investment grade corporate bond markets along with allocations to real assets and private equity.”

To conduct the survey, GSAM interviewed 307 Chief Investment Officers (CIOs), Chief Financial Officers (CFOs) and senior professionals at global insurance companies, representing more than $13 trillion in balance sheet assets, approximately half of the balance sheet assets for the global insurance sector.

Notable highlights from the survey include:

  • Economic slowdown in the US, Europe and China dominate the macroeconomic considerations. 
  • Concerns around rising interest rates decreased significantly (seven percent, down from 30 percent last year) as insurance investors are most concerned with credit quality deterioration in their portfolios (38 percent, up from 23 percent last year).
  • Insurers have a positive view on equity returns while more than half of respondents (62 percent) expect the 10-year US Treasury yield to remain in the 2.5-3.0 percent range by year-end, a break from previous results that had an upward bias to rising rates. Insurers are looking to lengthen portfolio durations.
  • Sixty-two percent of respondents include environmental, social and governance (ESG) as one of several investment considerations; the uptake is meaningfully higher in Europe (83 percent) and Asia Pacific (81 percent) compared to the Americas (43 percent).
  • More than half of insurers invest in ETFs (56 percent). Fixed income ETFs are most often used to manage short-term tactical exposures or achieve operational efficiency.
  • Nearly half of respondents invest in insurtech (46 percent), with Asia Pacific as an outsized contributor at 68 percent. Improving operational efficiency is most common draw for these investments.

For the second year, the Insurance Asset Management team expanded their reach and conducted a supplemental survey targeting retail distribution business leaders in North America. This supplement analyzes the views of North American business leaders on a broad range of topics including investment risks, market outlook, the credit cycle and evolving industry themes. The supplement found that global macroeconomic risks gained prevalence as an investment consideration. Business leaders increasingly cited concerns about the impact of political events on their portfolios, notably those pertaining to US-China relations and US politics.

Methodology
GSAM Insurance Asset Management continued its partnership with KRC Research, an independent research provider, to conduct its eighth annual global insurance investment survey. The survey provides insights from CIOs and CFOs regarding the macroeconomic outlook return expectations, asset allocation decisions, portfolio construction and industry themes. GSAM Insurance Asset Management analyzed responses from 307 participants at global insurance companies representing more than $13 trillion in balance sheet assets and approximately half of the balance sheet assets for the global insurance sector. The participating companies represent a broad cross section of the industry in terms of size, line of business and geography.

About Goldman Sachs Asset Management 
GSAM currently oversees over $255 billion in insurance assets as of December 31, 2018. 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:
https://www.gsam.com/content/gsam/us/en/institutions/our-clients/insurance.html

Goldman Sachs Asset Management is one of the world’s leading investment managers. With more than 2,000 professionals across 33 offices worldwide, GSAM provides institutional and individual investors with investment and advisory solutions, with strategies spanning asset classes, industries and geographies. Our investment solutions include fixed income, money markets, public equity, commodities, hedge funds, private equity and real estate. Our clients access these solutions through our proprietary strategies, strategic partnerships and our open architecture programs. Our investment teams represent more than 700 investment professionals, capitalizing on the market insights, risk management expertise and technology of Goldman Sachs. We help our clients navigate today’s dynamic markets and identify the opportunities that shape their portfolios and long-term investment goals. We extend these global capabilities to the world’s leading pension plans, sovereign wealth funds, central banks, insurance companies, financial institutions, endowments, foundations, individuals and family offices, for whom we invest or advise on more than $1 trillion of assets.

 

For the full report, please contact us.