By Andrei Skvarsky.
A survey by Goldman Sachs suggests that insurers worldwide are growing more optimistic about investment opportunities despite the uncertain and challenging 2012 with its low interest rates, and that many are willing to take on more portfolio risk.
More than 40% of chief investment officers (CIOs) of insurance companies intend to increase overall portfolio risk, though chief financial officers (CFOs) are more cautious, according to the findings of the online survey, entitled “Growing but Tempered Optimism” and carried out in February by Goldman Sachs Asset Management, a unit of the US-based bulge bracket bank, in partnership with independent firm KRC Research.
Thirty-one percent of CIOs questioned in the poll, compared to 14% in 2012, believed investment opportunities were improving.
While concern over the European debt crisis persisted, 23% of CIOs were most concerned about the impact of accommodative monetary policy, with credit and equity market volatility being the chief source of unease for 18% and inflation for 14%.
Rising interest rates were an increasing source of worry for 32%, vs 16% in 2012, and more than half expected interest rates to rise significantly in the next two to three years.
Inflation was seen as a medium-term risk, and there was less concern about deflation than the year before.
Generally speaking, CIOs anticipate equities to outperform fixed income assets in the near term.
They plan bigger allocations to assets that offer higher total return potential, interest rate protection, and/or an illiquidity premium – 43% of respondents intended to increase allocations to bank loans, while 38% and 37% were going to allocate more to US equities and real estate respectively.
At the same time, 42% planned to cut allocations to government and agency debt, and 37% planned lower allocations to cash and short-term instruments.
As for CFOs, globally more than 90% of respondents in that category thought the insurance industry was either adequately capitalised or over-capitalised, and 44% in the Americas saw the industry as over-capitalised.
CFOs hold mixed views on the best use of excess capital: 25% of those questioned cited organic growth, 22% named strengthening the capital base, and 25% thought returning capital to shareholders through dividends or share repurchases was the best idea.
The 252 professionals questioned by GSAM Insurance Asset Management, the insurance arm of Goldman Sachs Asset Management, included 189 CIOs, 54 CFOs and nine individuals serving as both CIO and CFO.
GSAM Insurance Asset Management currently has more than $131bn in insurance assets under management and is ranked among the top 10 insurance asset managers worldwide.
Its business activities include fixed income portfolio management and a suite of advisory services such as asset liability management, strategic asset allocation, investment strategies and risk management. The firm’s capabilities include partial and full outsourcing solutions involving traditional fixed income strategies, alternative investments and equities.
Goldman Sachs Asset Management had $860bn under management as of March 31.
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