Insurers prioritising yield & ESG factors within investment decisions: Goldman Sachs

 

 

According to findings from Goldman Sachs eleventh annual global insurance survey, as insurers continue to prioritise yield and Environmental, Social and Governance (ESG) factors in investment decisions, they plan to increase their allocation to private equity (44%), and green or impact bonds (42%) over the next year.

The survey titled – “Re-Emergence: Inflation, Yields, and Uncertainty”, also showed that in the Americas and Asia, 53% of investors expected to increase allocations to private equity, the highest of any asset class.

However, it also shown that in Europe, the Middle East and Africa (EMEA), green or impact bonds were the most favoured choice at 59%.

The survey analysed responses from 328 participants at global insurance companies representing more than $13 trillion in global balance sheets, ultimately representing around half of the balance sheet assets for the global insurance sector.

Goldman Sachs also stated the survey found that in a sharp reversal from the past two years, insurers are now seeing rising inflation and tighter monetary policy as the largest threats to their portfolios, with rising interest rates displacing low yields as the primary investment risk cited by insurers.

Michael Siegel, Global Head of Insurance Asset Management for Goldman Sachs Asset Management said: “Against a complex macroeconomic and geo-political 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.

“These assets can prove integral to diversifying portfolios while optimizing capital-adjusted returns, particularly over a longer-term time horizon.”

Furthermore, the survey highlighted the additional key areas where global insurers plan to increase their allocation over the next 12 months. This includes, middle market corporate loan (37%), infrastructure debt (36%), real estate equity (31%), infrastructure equity (30%) and US investment grade private placements (30%).

The survey also showed that globally, 92% of investors said they now consider ESG throughout the investment process, which is nearly a three-fold increase from 2017 (32%), with more than 21% saying it is now a primary investment consideration. In EMEA, 37% cite ESG as a primary investment consideration.

More than 55% of global insurers expect ESG considerations to have a large impact on asset allocation decisions over the next few years, causing it to rank in equal importance to regulatory capital requirements for the first time.

In addition, the survey showed that consolidation continues to be a growing trend among global insurers, with 96% of insurers expecting transactions to continue at their current pace or accelerate.

Investments in insurtech also rose across all regions, with operational efficiency being the top driver for the fourth consecutive year.

Lastly, the survey showed that as the crypto market continues to mature, 11% of American insurers say they are invested in or are considering investing in cryptocurrencies, compared to 6% of Asian insurers and just 1% of European insurers.

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