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Top 10 Asset Classes Goldman Sachs Sees on Insurers' Shopping Lists

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The world’s insurers hold about $39 trillion in assets — and now inflation has climbed to the top of their economic worry list.

Low interest rates have harried insurer asset managers for years. This year, rates are rising, but so are prices.

Goldman Sachs Asset Management looks at insurers’ fears, and the strategies they’re using to manage those risks, in a summary of the results from its 2022 global insurance asset management survey report.

The 328 insurance company financial executives who participated “remain focused on yield-enhancing asset classes,” according to the Goldman Sachs survey team.

The survey team assessed the popularity of 27 investment strategies by looking at the percentage of participants who said their companies were planning to increase or decrease allocations of assets to those strategies in the coming 12 months.

Participants were least likely to be adding cryptocurrency assets: Only 1% said they expected to increasing cryptocurrency allocations.

Commercial mortgage-backed securities ranked in the middle, with 12% of the participants expecting their companies to be increasing CMBS holdings.

For the 10 most popular asset classes, based on the percentage of participants who said their companies would be increasing holdings in that class, see the gallery above.

Fear Factors

The participants in the latest Goldman Sachs insurance asset management survey were insurance company chief investment officers and chief financial officers, according to the survey report. Their companies manage about $13 trillion in balance sheet assets.

The survey period ended Feb. 16, when Russian troops were gathering near Ukraine’s border but had not yet moved into Ukraine.

In 2021, inflation ranked fifth on the participants’ macroeconomic worry list, after investment market volatility, recession fears, the COVID-19 pandemic and U.S. money tightening.

This year, 28% ranked inflation as the greatest threat to their companies’ investment portfolios. A majority of the participants predicted that inflation risk would last for two to five years.

Concern that the U.S. government might respond to rising prices by tightening monetary policy (in other words: increasing interest rates) ranked second, and investment market volatility ranked third.

In spite of the concerns about inflation and interest rate increases, 63% of the participants said the investment landscape appeared to be the same or improving.

What It Means

Insurers’ willingness to accept more risk in an effort to increase yields might be a sign that retirement savers and other long-term savers should consider doing that, too.

Life insurers, especially, tend to be investors that try to minimize risk while funding claims that might appear decades in the future and last for decades.

In the United States, insurance regulators’ investment rules have traditionally led life insurers to focus on investments in corporate bonds. Stocks come with higher expected returns but more volatility.

U.S. life insurers ended 2021 with $9.8 trillion in financial assets of all kinds, according to the Federal Reserve Board. Those life insurers put $4.3 trillion in corporate bonds and loans and just $839 billion in corporate equities.

But, because of pressure to increase yields, U.S. life insurers let their stock portfolios grow by $107 billion over the course of 2021, while letting corporate bond and loan totals fall $35 billion.

(Photo: NASA)