A survey of global insurance industry CIOs and CFOs conducted by Goldman Sachs Asset Management (GSAM) has found that their primary concerns focus on achieving adequate returns, managing political uncertainty, an economic slowdown, and market volatility. The respondents also said they expect private equity to deliver the highest returns, while they are “generally less pessimistic” about global investment opportunities.
The survey, “A Reversal in Expectations,” received more than 300 responses from CIOs and CFOs insurance executives representing more than $10 trillion in global assets.
The survey found “a dramatic turn” in the smaller number (33%) of respondents who believed the world economy is in the late stage of the credit cycle compared to 75% of respondents last year. This means more insurance executives believe the global economy is growing slower than expected, so executives are expect greater political uncertainty accompanied by low interest rates.
Yet even with these caveats, insurers are decidedly more optimistic than in preceding years, with 88% of respondents saying that the S&P Index will be higher in 2017 than last year, when half of insurers said the index return would be negative. Overall optimism also translated into a greater appetite for equity and credit risk.
According to Michael Siegel, GSAM’s Global Head of Insurance Asset Management, “the survey clearly points to a favorable view on the global economy and optimism for higher equity prices and higher interest rates. This optimism is translating into greater risk taking in equities, less liquid assets, and in particular, fixed income credit.”
The global survey also found regional differences in responses. For example, different parts of the world are making different asset allocation decisions due to such factors as increases in government and infrastructure spending. This is why nearly one-third of US and European insurers anticipate increasing their allocation to infrastructure debt. Over half (57%) of Asia Pacific-based insurers intend to increase their allocation to US investment grade corporates, up from 45% last year. Insurers in the US and Europe also are showing more interest in commercial mortgage loans, which may become a larger portion of their portfolios.
Collectively, the survey also found that::
- More than 80% of insurers anticipate an increase in 10-year US Treasury yields, and 88% of insurers believe S&P 500 Index returns will be positive in 2017.
- Only 2% of the respondents said credit spreads “will widen significantly” this year. The “backpedaling” view on the credit cycle has seen an increase in corporate credit allocations, with a 33% of insurers planning to increase their exposure to credit risk.
- Brent crude oil prices are anticipated to be range bound between $50 and $75.