Insurers planning to increase investments in private equity, green bonds
Inflation is now viewed as the biggest threat to insurers’ portfolios, according to Goldman Sachs.
Insurance companies worldwide have signaled that the coming year will see more focus on investment allocations on private equity and green or “impact” bonds (results-based financing), according to Goldman Sachs.
Insurance players in the Americas and Asia are expected to put more weight into private equity. Respondents in Asia show particularly strong interest in private equity globally, as it has ranked as the top investment priority for the past two years. Green bonds ranked second this year among Asian respondents.
Insurers in Europe, the Middle East and Africa (EMEA) are more inclined to favor green bonds, a Goldman Sachs survey found. Nearly 60% of respondents in EMEA said they planned to increase investment in green and impact bonds in the coming 12 months.
Further, more than half of global insurers said they anticipate environmental, social and governance (ESG) considerations to have a major influence on how they invest in the coming years. For the first time, ESG considerations rank equally as important as regulatory capital requirements, Goldman Sachs reported.
While green bonds ranked high for respondents in both EMEA and Asia, they did not crack the top five as a priority for American insurers.
Other areas global insurance companies are expected to increase allocations during the coming 12 months include middle-market corporate loans, infrastructure debt, real estate and infrastructure equity.
Inflation now draws more worry than low yields
For the past two years, the Goldman Sachs survey found low yields were the primary investment risk most insurers worried about. This year inflation and tighter monetary policy both ranked as bigger future threats to portfolios.
Nearly 80% of global insurers said inflation is a concern for the year ahead, according to Goldman Sachs, which reported this sentiment is more concentrated in the Americas and Europe than in Asia.
As a result of growing inflation, Goldman Sachs anticipates insurance companies to allocate more dollars into more inflation-resilient investments, such as real estate and floating rate products, in the year ahead.
“Against a complex macroeconomic and geopolitical environment, demand for yield remains high, and we expect to see insurers continue to build positions in private asset classes as well as inflation hedges, including private equity, private credit and real estate,” Michael Siegel, global head of insurance asset management for Goldman Sachs Asset Management, said in a release. “These assets can prove integral to diversifying portfolios while optimizing capital-adjusted returns, particularly over a longer-term time horizon.”