Global insurers aim to maintain a risk-on investment approach, with higher allocations to private equity, green bonds, middle-market corporate loans, and crypto assets, according to a Goldman Sachs Insurance Asset Management report.
According to the report, the survey represents the views of 328 chief investment officers and chief financial officers handling more than USD 13tn in global balance sheet assets.
"In a sharp reversal from prior years, insurers now see rising inflation and tighter monetary policy as the largest threats to their portfolios. Amid strong wage growth and strong employment gains, the easy monetary policies of the pandemic-era are unwound, and expected rate hikes are top of mind," it said.
Commenting on the Company's findings, Mike Siegel, Global Head for Insurance Asset Management and Liquidity Solutions Businesses at the investment bank's Asset Management arm, said that global insurers were also demonstrating a rising interest in crypto.
"This year, we surveyed for the first time on crypto, which I thought we would get no respondents. But I was surprised. A good 6% of the industry respondents indicated that they're either invested in crypto, or more specifically, considering investing in crypto," he said.
According to Siegel, the companies that are either invested (2%) or considering allocating their funds (4%) to crypto to understand the market and the infrastructure better.
"But if this becomes a transactive currency, they want to have the ability down the road to denominate policies in crypto. And also accept premium in crypto, just like they do in, say, dollars or yen or sterling or euro," the executive said. Also, per the report, American insurers are slightly more interested, with 11% are currently invested or considering investing in crypto assets, compared to Asian insurers at 6% and European insurers at 1%.
However, views are still mixed regarding the expected profitability of crypto investments. At the same time, crypto-assets were ranked among the top 5 asset classes that are expected to deliver the highest and lowest total returns in the next 12 months.
In either case, 1% of the respondents said they're planning to increase their allocation to crypto assets in the next 12 months, 7% are planning to maintain their current allocation, and no one is planning to sell it.
"As the crypto market continues to mature, coupled with growing regulatory certainty, a cross-section of institutions are becoming more confident to explore investment opportunities and recognize the disruptive impact of the underlying blockchain technology. I have been positively surprised by the rising adoption by global asset managers, who recognize the potential of this market," Mathew McDermott, Global Head of Digital Assets at Goldman Sachs Insurance Asset Management, was quoted as saying. Some of the main macroeconomic risks highlighted by the respondents include inflation, at 28%, the U.S. monetary tightening, with a 20% share, and credit and equity market volatility, at 18%, followed by the economic slowdown/recession in the U.S. and Europe, with a 16% and 5% share, respectively.
While investment uncertainty remains strong, 2022 respondents are more optimistic than those interviewed last year and in 2020, with 63% declaring the investment landscape was either the same or improving, according to the report. "Respondents remain focused on yield-enhancing asset classes, as seen by continued interest in private market opportunities. Although reinvestment rates have begun to rise in 2022, insurers expressed continued interest in alternative investments as a driver of returns," Goldman Sachs Insurance Asset Management said.