Insurance companies are more pessimistic than they’ve been in years about finding attractive investment opportunities due to global monetary policies pushing yields to ultra-low or even negative levels, said the annual Goldman Sachs Asset Management Insurance Survey.
This year, insurers demonstrated the greatest amount of pessimism regarding investment opportunities since GSAM first began conducting the survey in 2012. The majority of insurers — 63% — believe investment opportunities are getting worse, while only 9% believe opportunities are improving.
In 2014’s survey, 39% of respondents said they thought investment opportunities were getting worse, while 26% thought they were improving.
“It’s not that insurers think markets are too volatile; it’s that yields are too low, credit spreads are too tight and equity prices are too high,” said Michael H. Siegel, managing director, global head of GSAM’s insurance business and co-author of the report, in a phone interview. “There’s a concern about getting adequate returns on investing.”
Of the Europe, Middle East and Africa-based insurers surveyed, 74% believe investment opportunities are getting worse. Much of this is due to sovereign yields in Europe moving further into negative territory.
“This year, European insurers are faced with negative interest rates in Switzerland and Germany. And around the globe, most equity markets are at all-time highs, making them much more expensive to invest in,” Mr. Siegel added.
Despite this pessimism, roughly one-third of insurers globally intend to increase overall portfolio risk, with the most significant risk appetite stemming from EMEA and pan-Asia-based insurers.
Nearly a quarter of CIOs — 23% — believe that private equity will be the best-performing asset class in 2015. Insurers also expect U.S. and European equities to deliver strong relative returns.
Roughly 66% of insurers believe their industry peer group is taking the appropriate amount of investment risk, while 21% believe the industry is taking too much risk.
When asked which issue posed the greatest macroeconomic risk to their investment portfolio, 23% of respondents said slower-than-expected U.S. economic growth. Meanwhile, 19% said credit and equity market volatility, while 17% said deflation.
GSAM surveyed a total of 267 CIOs and chief financial officers in February, representing more than $6 trillion in insurance balance sheet assets.