- By Region
Insurers are planning to boost their exposure to high-risk assets over the next year even though they are generally downbeat about investment opportunities, Goldman Sachs has disclosed.
The bank’s comprehensive survey of 152 of the world’s biggest insurers, which control almost $4tn worth of assets, shows that many are set to reshape their traditionally conservative asset allocation.
The study, conducted in May and published on Monday, finds the sector looking set to increase its holdings of less liquid investments such as high-yield bonds, emerging market debt and private equity.
To help fund the move, insurers plan their biggest portfolio reductions in cash and short-term instruments as well as European financial credit.
Almost half of the insurers believe their investment opportunities are getting worse, while only 14 per cent feel they are improving and 38 per cent that they are staying the same.
Crucially, however, most – about two-thirds – cite low yields as the investment risk about which they are most concerned. Goldman said this factor lay behind their increased interest in higher-yielding asset classes.
Jim O’Neill, chairman of Goldman Sachs Asset Management, said the survey “reflects the generally worrying views that tend to populate the minds of most Western investors, from whom the majority of responses came.”
However, he added it provided evidence to suggest that “many investors simply have no choice [but] to reach for more risk given their own obligations and liability requirements”.
Low interest rates pose a particular headache for life insurers in the US and several markets in Europe, which offer relatively generous guaranteed returns to policyholders.
The report says: “In the wake of the financial crisis, insurers were diligent in increasing their cash balances and took a conservative approach to asset allocation.
“Several years [later] … insurers are facing damped investment income and need to generate higher returns.”
As well as the greater interest in riskier assets, however, 81 per cent of the insurers questioned plan to increase or maintain their positions in US investment-grade corporates.
Meanwhile, stocks are unlikely to benefit strongly. Only 21 per cent of the insurers say they are set to increase their exposure to US equities while a tenth plan to cut it.
About the same number say they are likely to cut their holdings of European shares as those who plan to add to them.
The study also finds limited appetite among insurers to increase their holdings of domestic government debt.
A study by BlackRock earlier this year showed insurers hold two-thirds of their assets in fixed income securities, with corporate bonds accounting for 38 per cent and government debt 28 per cent.
Equity exposure came to only 15 per cent, hedge funds, derivatives, property and other alternative assets 11 per cent and cash 3 per cent.