Interview, Fireside Chat
Why Global Insurers Are Leaning Into Risk
- Goldman Sachs' 10th annual insurance report surveyed 286 respondents representing over $14 trillion in assets, covering more than half of global industry assets.
- Insurers are adopting a "risk-on" strategy across life, property casualty, healthcare, and reinsurance sectors, as well as across Americas, Europe, Asia, and Bermuda.
- Allocations are increasing in equity risk, credit risk, duration extension, and illiquidity risk.
- Private equity remains the top asset class for increased allocation, followed by private credit (including middle market loans, infrastructure debt, and emerging market corporate debt) and floating rate assets like collateralized loan obligations.
- Funding for these shifts will come from reducing government securities, utilizing excess cash, and slightly reducing hedge fund allocations.
- Insurers prefer private assets due to superior returns relative to public markets and their ability to capture illiquidity premiums via stable balance sheets.
- Concern regarding inflation has significantly risen, replacing previous concerns about deflation, particularly in Europe.
- Respondents favor floating rate assets as a hedge against potential monetary authority rate hikes driven by inflation.
- Less than 50% of insurers believe the credit cycle is in its later stages, marking a shift from the prior two years when firms anticipated credit deterioration; the current consensus places the cycle in the middle stage.
- Optimism is widespread, with insurers projecting recessions to be more than three years away.
- ESG integration in investment processes continues to rise globally, accelerating from Europe to Asia and now reaching the U.S.
- ESG considerations now influence underwriting policies, climate risk assessment, and the reorientation of asset bases toward environmental, social, and governance factors.
- Impact investing has emerged as a significant area of dialogue, focusing on capital deployment for positive environmental and social outcomes.
- Regional differences indicate a more pronounced risk appetite in Asia, driven by rapid economic and population growth, compared to slower growth in Europe.
- The podcast episode was recorded on April 20, 2021.