Insurers’ Change in Sentiment and Shift to Private Markets

May 31, 2018//-In a harbinger of growing concerns over the economy and markets, global insurers are increasingly looking to reduce risk in their investment portfolios.

Goldman Sachs Asset Management’s (GSAM) Mike Siegel, global head of Insurance Asset Management, explains the shift in sentiment and why it matters.

According to GSAM’s recently released annual insurance survey, which represents the views of about 300 executives overseeing more than $10 trillion in assets, insurers appear to be getting more cautious. Why?

Mike Siegel: We’re seeing a shift in sentiment among the insurers we spoke with this year. For one, the markets had a pickup in volatility for the first time in nearly a decade, prompting insurers to question the current investment landscape. While low returns have been the main concern for the insurance industry for the last several years, insurers are increasingly worried about a possible global economic slowdown and a US recession. In fact, for the first time since we started the survey seven years ago, more respondents said they were decreasing, rather than increasing, risk in their portfolios. We believe that insurers’ investment views on the economy, markets and asset classes can serve as an early indicator for the broader investment community.

How are those worries reflected in insurers’ investment outlook?

MS: Overall, insurers are less optimistic about the investment opportunity set, with over half reporting that opportunities have declined year-over-year. While investors are generally more pessimistic and risk averse, that doesn’t mean they’re running away from the markets. Equities still remain as the most favored asset class from an expected forward return perspective; insurers are shifting their preference from public to private equity and other less-liquid alternatives such as infrastructure debt, commercial mortgage loans and middle market corporate loans.

The macroeconomic environment has changed substantially since last year when fears over political events and elections were predominant. What do insurers see as the key concerns this year?

MS: Political risks have receded as concerns for insurers. Instead, for the first time since the financial crisis, insurers say rising interest rates represent the biggest threat to their portfolios. In fact, about two-thirds of insurers expect 10-year US Treasury yields will end 2018 between 3.0% and 3.5%. That said, insurers expressed a growing consensus that we are in the late stage of the US credit cycle, while the broader global credit cycle is more middle stage.

Goldman Sachs 

Photo Gallery

Log in | Designed by Village Pixels