Insurance companies are planning to upgrade their risk management capabilities as they continue to diversify into higher-return asset classes, according to a survey of insurance company chief investment officers sponsored by Goldman Sachs Asset Management.
The survey showed 26% of respondents saying they expect to increase overall investment risk, against 14% who said they're looking to reduce risk.
Toward that end, high-yield debt, U.S. investment-grade corporate bonds, emerging markets debt, real estate, bank loans and mezzanine debt were the market segments slated for the most inflows. On a net basis, 33% of respondents said they anticipated allocating more to high-yield bonds, 30% each for U.S. corporate bonds and emerging market debt; 29% for real estate; 24% for bank loans; and 20% for mezzanine debt.
Funding for those increases appeared set to come from cash and short-term instruments, with a net 34% predicting a decrease in those allocations, with a net 19% saying they plan to reduce allocations to European financial credit.
The survey showed insurance CIOs, particularly those in Asia, are pessimistic regarding the outlook for an investment environment already dogged by rock-bottom interest rates. While 48% of CIOs globally said investment opportunities now are getting worse compared with a year ago, against a mere 14% who said opportunities are improving, the correspondent figures for the survey's 15 Asia-based respondents were 73% and 7%.
A large majority of respondents said they're looking to beef up their risk management capabilities, with 30% saying they plan to invest significantly more in that area and 52% saying they would do so “to some extent.”
In a telephone interview, Michael Siegel, GSAM's global head of insurance asset management, said the survey's finding that, on the margin, more insurers are looking to increase risk than reduce risk was a bit surprising considering how bleak the majority of respondents believe the investment environment is now.
Mr. Siegel said insurers are “in much better shape today … to take on more investment risk” after bolstering their balance sheets in recent years, including through raising capital in the market and through retained earnings.
The survey of CIOs at 152 insurance companies globally with $3.8 trillion in invested assets was conducted by third-party research firm KRC Research on behalf of GSAM Insurance Asset Management.