Goldman Sachs’ latest insurer asset management survey reveals a dramatic change in the usual credit cycle for inflation, rates and equity returns, with only one-third of insurers now believing they’re in the late stages of the credit cycle, compared with last year’s three quarters of correspondants.
This represents a reversal in the credit cycle, and a view within the industry that the credit cycle has lengthened.
317 Chief Investment Officers (CIOs) and Chief Financial Officers (CFOs) participated in the survey, which Goldman Sachs said represents over $10 trillion in global balance sheet assets.
For insurers, the competitive market conditions mean that above all, they’ve been aiming to achieve adequate returns in an environment of low rates and high equity valuations, but many insurance executives remain optimistic with over 80% saying they expect an increase in 10-Year US Treasury yields and 88% believing S&P 500 Index returns will be positive, the report said.
One third of survey participants said they planned to increase their exposure to credit risk, the survey said this year, “insurers expressed a more optimistic view of investment opportunities; only a third of survey respondents believe investment opportunities are getting worse, compared to 48% in 2016.”
And Asia Pacific insurers in particular showed a strong inclination to grow portfolio risk, after last year’s fears of China’s hard-hitting economic slowdown abated.
The report shows only 3% of participants see a more sluggish Chinese economy as the biggest concern, compared with 24% placing it within top three concerns last year.
And unsurprisingly with the growth of populism and protectionism, political risk has jumped to the top macroeconomic concern; “this year, political risk was the top macroeconomic risk (26% of respondents) with more than 50% of insurers placing it among the top three risks.”
Last year, it was rated by just 3% as a top risk.
The broad picture, however, is one of optimism, with the survey showing concerns over investment opportunities decreasing down to one third from 48% in 2016.
Insurers anticipate returns on growth-related asset classes, including private equity, U.S. equities and emerging market equities, as well as increased allocations to higher yielding assets, according to Goldman Sachs.
