Higher Yields Lure Insurers Back to Fixed Income, While Appetite For Private Assets Remains StrongG

Goldman Sachs AM Survey

Date: 13 Apr 2023 · 09:13

Authors: Funds Society, Madrid y Funds Society, Miami

The results show that while insurers expect a deterioration of credit quality and upcoming recession in the U.S., they are leaning heavily into fixed income and seeking to increase duration and credit risk

The survey 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

The survey incorporates the views of 343 Insurance company CIOs and CFOs representing over $13 trillion in global balance sheet assets

Goldman Sachs Asset Management released the findings of its twelfth annual global insurance investment survey, Balancing with Yield on the Inflationary Tightrope.

The results show that while insurers expect a deterioration of credit quality and upcoming recession in the U.S., they are leaning heavily into fixed income and seeking to increase duration and credit risk. For the first time, insurers ranked increasing yield opportunities in the current environment as the most important factor driving asset allocation decisions (68%), nearly triple the percentage of those who say they are decreasing risk due to concern with equity or credit losses (25%).

“With high inflation, rising geopolitical tensions, and the effects of tightening monetary policy, insurers are looking to take advantage of higher rates while managing their market risk,” notes Matt Armas, Global Head of Insurance Asset Management at Goldman Sachs Asset Management. “As shown in the survey results, the journey to rebuilding yield, is done with a balance of duration and high-quality credit opportunities.”

The survey 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 percent of respondents plan to allocate more to private equity, and 28% plan to increase their allocation to infrastructure equity and infrastructure debt.

“Despite uncertain market conditions, we believe there are real opportunities for investors across private and public markets, particularly in credit, where increasingly attractive yields in fixed income have lured back insurance investors,” said Michael Siegel, Global Head of Insurance Asset Management and Liquidity Solutions at Goldman Sachs Asset Management. “We also expect insurers to continue to build positions in private asset classes, including private credit, private equity and infrastructure, as they seek to diversify portfolios and take advantage of expanding illiquidity premiums. ”

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