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Insurers less optimistic on investment opportunities, plan on lowering risk – survey

Insurers are concerned with achieving adequate returns without leaving their portfolios overexposed in the event of a downturn, according to a Goldman Sachs Asset Management survey.

In GSAM's seventh annual review of the investment sentiment of the global insurance industry, 50% of insurers believe their investment opportunities are getting worse, up from the 36% that expressed that belief in the 2017 survey. In 2016, 48% of insurers felt their opportunities were getting worse.

Thirty-three percent of insurers believe those opportunities are the same as the previous year, compared to 41% in 2017, while 18% of insurers felt that opportunities are getting better, compared to 23% in 2017.

Globally, more insurers are looking to decrease equity risk and credit risk than to increase. This is a reversal from the 2017 survey, which revealed that insurers planned to increase equity and credit risk.

A net 4% of global respondents said they planned to decrease credit risk this year, compared to a net 16% that planned to increase credit risk last year. By region, a net 16% of respondents in Europe, the Middle East and Africa said they planned to decrease credit risk; a net 8% in the Americas plan to decrease risk; and a net 26% of respondents in the Asia-Pacific region said they planned to increase credit risk.

For equity risk, a net 7% of global respondents plan to decrease equity risk, while a net 10% of respondents in the Americas plan to decrease the risk. EMEA respondents are relatively neutral, with a net 1% increasing equity risk, while a net 9% in Asia-Pacific plan to decrease equity risk.

Appetite for portfolio risk fell year-over year to a net -1% in this year's survey from a net 16% in 2017. This marks the first time since GSAM began conducting this survey that more insurers plan to reduce rather than increase risk in their portfolios.

Half of insurers expect emerging market equities to be among the highest returning asset classes in 2018, up from 33% a year ago. Private equity was close behind at 48%, similar to the results of last year's survey. Thirty-nine percent of insurers surveyed believe U.S. equities will be a top-performing asset class in 2018, down from 44% last year. Insurers continue to show interest in high-returning less liquid assets, with a net 32% looking to increase or their allocations to private equity, 27% to infrastructure debt, 22% to commercial mortgage loans and 21% to middle-market corporate loans.

While overall portfolio risk appetite is nearly neutral globally in 2018, North American insurers were the most risk averse, with a net 9% saying they plan to derisk. Meanwhile, on the opposite end of the spectrum, Asian insurers exhibited the largest appetite for increasing risk, with a net 16% indicating they plan to add to overall investment risk.

When asked what they believe are the top macroeconomic risks to their investment portfolios this year, 24% of respondents said an economic slowdown to recession in the U.S., while 21% said inflation. Nineteen percent of respondents said credit and equity market volatility as the top risk that concerns them.

The 2018 survey received responses from 300 chief investment officers and chief financial officers, representing an industry with more than $10 trillion in assets.