Insurance companies are seeing more investment opportunities this year but are becoming increasingly more concerned about rising interest rates, according to this year's Goldman Sachs Asset Management Insurance Survey.
Thirty-one percent of insurance company chief investment officers globally believe investment opportunities are improving, compared to 14% in 2012. More than 40% intend to increase overall portfolio risk compared to just 7% who plan to decrease risk.
The greatest concern cited by CIOs was accommodative monetary policy at 23%, followed by credit and equity market volatility and inflation at 18% and 14%, respectively. Low yields remain the greatest investment risk at 52%, but the percentage of insurers citing rising interest rates doubled from last year to 32%. More than half of respondents think interest rates will increase significantly in the next two to three years.
Meanwhile, 42% of CIOs plan on decreasing allocations to government and agency debt, and 40% plan on decreasing to cash and short-term instruments. CIOs intend to increase allocations to bank loans, 43%; U.S. equity, 38%; and real estate, 37%.
Other than total return, 55% of insurers said high current dividends is the most important factor when considering an equity allocation, while 37% prefer a strategy that targets low volatility.
CIOs expect emerging markets and U.S. equities to perform the best over the next 12 months, followed by private equity and then real estate. Cash, short-term instruments, and government and agency debt are expected to have the lowest returns.
Among chief financial officers surveyed, 29% cited credit and equity market volatility as the greatest macroeconomic risk, followed by inflation and the European debt crisis, each at 14%. Nearly 60% of CFOs estimate the equity returns will be 5% to 10% this year, while 40% anticipate returns in the range of 10% to 15%.
Nearly 30% of insurers believe their peer group is taking on excessive risk, while 19% said their peer group is not taking sufficient investment risk.
GSAM Insurance Asset Management surveyed 252 CIOs and CFOs in February, representing more than $6 trillion in insurance balance sheet assets.