Global insurers turn to private credit — and AI

Macro Outlook and Risk Assessment

• The 2024 macroeconomic backdrop is viewed as more constructive than the recession and inflation fears of the prior year, though concerns regarding a global economic slowdown, market volatility, and geopolitics persist.
• Insurers identify the performance of the global economy and the potential for recession-induced credit deterioration as the single biggest risk to their portfolios.
• For the first time in four years, the prospect of declining interest rates is flagged as a specific concern by 98% of respondents who believe short-term rates and 83% who believe long-term rates have peaked.
• Lower interest rates are viewed as a risk because insurers rely on investment yields to fund future claims payments; falling rates reduce the income available to support these obligations.

Portfolio Strategy and Asset Allocation

• The insurance industry manages approximately $26 trillion in global assets, making their allocation shifts significant drivers for broader market flows.
• Insurers are actively shifting capital to capture high current yields and build portfolio resiliency against potential economic downturns.
• Private credit and investment-grade private debt have moved to the top of return expectations charts for the first time in the survey's 13-year history, with expected returns of 8–10%, matching public equity forecasts.
• Real estate exposure is being reduced, specifically in commercial office properties and commercial mortgage-backed securities, driven by refinancing concerns and "return to office" uncertainty.
• The reduction in real estate exposure is a long-term trend that began over a decade ago due to valuation concerns during the low-interest-rate era and will continue to unfold slowly given the 10–14 year asset holding horizons.
• Fixed income asset classes, including floating-rate notes and high-yield bonds, are favored due to yields not seen since before the Great Financial Crisis and potential price appreciation as rates fall.

Technology and Industry Transformation

• Artificial Intelligence adoption was faster and more extensive than anticipated in the 2024 survey, with implementation focused primarily on cost savings and operational productivity.
• AI applications in insurance are expanding from operational efficiency to core underwriting decisions (pricing and issuance) and investment selection.
• The high cost of AI implementation is expected to accelerate industry consolidation, as larger insurers gain a competitive advantage through scale.
• Increased AI efficiency is projected to lead to more accurate risk pricing and faster claims processing, potentially lowering costs for consumers in a highly competitive market.

ESG and Climate Adaptation

• ESG and impact investing remain critical, with 94% of European and 92% of Asian respondents prioritizing environmental impact investments.
• There is a strategic shift in ESG focus from portfolio exclusions toward driving returns through climate transition financing and providing economic access in sectors like education and financial services.
• Insurers are integrating climate data into underwriting and pricing to manage exposure to natural catastrophes such as hurricanes, windstorms, and earthquakes.
• Investment strategies now target the financing of energy transition projects, viewed as providing substantial return opportunities for the industry.

Survey Reliability and Methodology

• The 13th annual Goldman Sachs Insurance Survey indicates that insurer actions generally align with their stated strategic intentions, particularly regarding increased activity in private credit and investment-grade private assets.
• The survey was recorded on April 4, 2024, and titled "Risk and Resilience."