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Goldman Sachs Asset Management Insurance CIO and CFO Survey Shows Insurers Growing More Optimistic and Willing to Take on More Investment Risk

April 24, 2013

NEW YORK, April 24, 2013 – While global macroeconomic uncertainty combined with low interest rates made 2012 a challenging year, insurers are growing more optimistic about investment opportunities and many are willing to take on more portfolio risk. Results from this year’s Goldman Sachs Asset Management (GSAM) Insurance Survey indicate that Chief Investment Officers (CIOs) and Chief Financial Officers (CFOs) have differing views on investment risk. While more than 40 percent of insurance CIOs intend to increase overall portfolio risk, insurance CFOs have more conservative views regarding the appropriate level of risk.

Globally, insurance CIOs anticipate equities will outperform fixed income assets in the near term. Insurers intend to increase allocations to assets that offer higher total return potential, interest rate protection, and/or an illiquidity premium, including equities, bank loans, real estate, commercial mortgage loans and private equity. Most insurance CFOs believe the industry is adequately or over-capitalized, but have mixed views on whether excess capital should be retained or returned to shareholders. CFOs have moderate Return on Equity (ROE) expectations for 2013 in the range of 5% to 15%.

These were among the key findings of the 2013 GSAM Insurance Survey, “Growing but Tempered Optimism.” GSAM Insurance Asset Management partnered with KRC Research, an independent, third-party research firm to collect the views of 252 CIOs and CFOs. This global study represents over $6 trillion in insurance balance sheet assets.

“It’s clear that insurers are feeling more optimistic, although there is still a good deal of caution. Insurers recognize the difficulty of generating adequate returns by holding predominantly high grade portfolios. Lower investment returns have challenged the industry’s ability to deliver strong financial results which have pressured insurance company equity valuations,” said Michael Siegel, GSAM’s Global Head of Insurance Asset Management.

Key findings of the survey includei:

  • An increasing number of CIOs believe investment opportunities are improving (31%) compared to just 14% in 2012.
  • While concern over the European debt crisis remains, this year CIOs are most concerned about the impact of accommodative monetary policy (23%) followed by credit and equity market volatility (18%) and inflation (14%).
  • CIO are increasingly concerned about rising interest rates (32% vs. 16% in 2012) and more than half believe interest rates will increase significantly in the next two to three years.
  • Inflation is considered a medium-term risk, while concerns about deflation have retreated from the year prior.
  • Insurers intend to increase allocations to bank loans (43%), US equities (38%), and real estate (37%), and intend to decrease allocations to government and agency debt (42%) and cash and short-term instruments (37%).
  • Globally, more than 90% of insurance CFOs believe their peer group is either adequately or over-capitalized, with 44% of CFOs in the Americas viewing the industry as over-capitalized.
  • CFOs hold mixed views on the best use of excess capital. CFOs cited organic growth (25%), strengthening the capital base (22%) and returning capital to shareholders through dividends or share repurchases (25%) as the best uses of excess capital.

Methodology

These results are from the 2013 GSAM Insurance Asset Management Survey conducted in February 2013. The global online survey received responses from 252 senior insurance professionals, including 189 CIOS, 54 CFOs and 9 individuals who serve as both CIO and CFO.

GSAM Insurance Asset Management currently manages over $131 billion in insurance assets and is ranked among the top 10 insurance asset managers worldwide1. The group has more than 50 dedicated professionals focused on client relationship management, fixed income portfolio management, insurance advisory services and accounting policy. GSAM’s insurance capabilities include partial to full outsourcing solutions involving traditional fixed income strategies, alternative investments and equities. The group offers a suite of advisory services including asset liability management, strategic asset allocation, capital-efficient investment strategies and risk management.

Goldman Sachs Asset Management is the asset management arm of The Goldman Sachs Group, Inc. (NYSE: GS), which manages $860 billion as of March 31, 2013. Goldman Sachs Asset Management has been providing discretionary investment advisory services since 1988 and has investment professionals in all major financial centers around the world. The company offers investment strategies across a broad range of asset classes to institutional and individual clients globally. Founded in 1869, Goldman Sachs is a leading global investment banking, securities and investment management firm that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals.

Media Contacts:
Andrea Raphael Tel: 212-357-0025
Pinar Posluk Tel: 212-445-8242

i These findings represent an aggregation of responses from respondents of the GSAM Insurance Asset Management Insurance CIO & CFO Survey and do not reflect or represent the views or opinions of Goldman Sachs.

General Disclosures:

Survey information as of March 5, 2013.

This material is provided for informational purposes only. It is not an offer or solicitation to buy or sell any securities.

Confidentiality

No part of this material may, without GSAM’s prior written consent, be (i) copied, photocopied © 2013 Goldman Sachs. All rights reserved.