Insurers taking on more portfolio risk as pandemic ebbs – survey

As uncertainties surrounding the coronavirus pandemic have begun to wane, global insurers have become more open to adding risk to their investment portfolios, according to a survey released Wednesday.

Goldman Sachs Asset Management's 10th annual insurance survey revealed that 34% of insurers said they plan to increase the overall risk in their investment portfolios, vs. 8% that said they plan to decrease their overall risk exposure. By contrast, last year's survey showed that 30% of insurers expected to increase overall risk, while 17% planned to decrease.

The move towards increasing risk will likely be done by shifting cash into higher risk asset classes such as private equity, middle-market corporate loans and infrastructure debt allocations.

For the fifth year in a row, consideration of environmental, social and governance factors in investments has grown. Globally, 13% of respondents said ESG is a primary concern, up 4 percentage points from last year.

Meanwhile, 83% of survey respondents said they evaluated ESG in their investment processes, compared to 32% just four years ago. The growth is largely due to increased adoption in the Americas.

When asked to identify the top asset classes where they plan to increase allocations, 37% of global insurers said private equity, followed by middle-market corporate loans (34%), infrastructure debt (31%), and collateralized loan obligations (29%).

Though inflation risk wasn't a large concern for insurers for the last two years, that trend has reversed in 2021, with 78% of insurers expressing concern over inflation within the next five years (vs. 49% in 2020 and 51% in 2019). The shift in attitude is supported by recent economic stimulus efforts and the Federal Reserve's commitment to keeping interest rates low for the short term.

"While the pandemic affected insurance companies globally across all business lines, the industry is well-capitalized and is actively positioning for economic recovery," said Michael Siegel, global head of insurance asset management for Goldman Sachs Asset Management, in a news release announcing the survey results. "Despite the level of uncertainty that we're still facing, we're seeing insurers take on more risk and look further out along the risk curve for opportunities as economic conditions improve."

Market volatility was insurers' top concern for 2021, with 19% putting it at No. 1 on their lists, followed by economic slowdown in the U.S. (18%) and the global pandemic (16%).

GSAM surveyed 286 CIOs and chief financial officers, representing more than $13 trillion in insurance balance sheet assets.