Top 10 asset classes Goldman Sachs sees on insurers’ shopping lists

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The world’s insurers hold around $39 trillion in assets – and now inflation has climbed to the top of their list of economic concerns.

Low interest rates have plagued insurer asset managers for years. This year, rates are rising, but so are prices.

Goldman Sachs Asset Management examines insurers’ fears, and the strategies they use to manage those risks, in a summary of the results of its 2022 Global Insurance Asset Management Survey.

The 328 insurance company finance executives who participated “remain focused on yield-enhancing asset classes,” according to the Goldman Sachs survey team.

The survey team gauged the popularity of 27 investment strategies by looking at the percentage of participants who said their companies planned to increase or decrease asset allocations to those strategies over the next 12 months.

Respondents were the least likely to add cryptocurrency assets: only 1% said they expected to increase cryptocurrency allocations.

Commercial mortgage-backed securities ranked in the middle, with 12% of respondents expecting their companies to increase their holdings of CMBS.

For the 10 most popular asset classes, based on the percentage of participants who said their companies would increase their holdings in that class, see the gallery above.

Fear Factors

Participants in Goldman Sachs’ latest insurance asset management survey were chief investment officers and chief financial officers of insurance companies, according to the survey report. Their companies manage approximately $13 trillion in balance sheet assets.

The investigation period ended on February 16, when Russian troops were gathering near the Ukrainian border but had not yet entered Ukraine.

In 2021, inflation ranked fifth on participants’ list of macroeconomic concerns, following investment market volatility, recession fears, the COVID-19 pandemic and US monetary tightening.

This year, 28% ranked inflation as the biggest threat to their companies’ investment portfolios. The majority of participants predicted that the risk of inflation would last two to five years.

Fear that the US government will react to rising prices by tightening monetary policy (in other words: raising interest rates) ranked second, and investment market volatility ranked third. .

Despite concerns about inflation and interest rate hikes, 63% of participants said the investment landscape appeared to be the same or improving.

What this means

Insurers’ willingness to take on more risk in an effort to increase returns could be a sign that retirement and other long-term savers should also consider doing so.

Life insurers, in particular, tend to be investors trying to minimize risk while funding claims that could appear decades in the future and last for decades.

In the United States, insurance regulators’ investment rules have traditionally led life insurers to focus on corporate bond investments. Stocks come with higher expected returns, but more volatility.

U.S. life insurers ended 2021 with $9.8 trillion in financial assets of all kinds, according to the Federal Reserve Board. These life insurers invested $4.3 trillion in corporate bonds and loans and only $839 billion in corporate stocks.

But, due to pressure to boost yields, US life insurers let their equity portfolios grow by $107 billion during 2021, while letting corporate bonds and total loans fall by 35. billions of dollars.

(Photo: NASA)

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