Insurance Companies Hit The Risk-On Switch

Here’s how CIOs are changing allocations at some of the world’s biggest investors, according to a survey by Goldman Sachs Asset Management.

Illustration by II (Getty images)

Illustration by II

(Getty images)

Chief investment officers and other leaders at insurance companies representing more than $13 trillion in assets are expecting credit quality to deteriorate and the U.S. to fall into recession. But that’s not stopping them from leaning further into fixed income and increasing risk in their portfolios.

Despite their predictions for the U.S. economy, insurance companies are more optimistic about the global investment landscape then they have been since 2016. Fifty-three percent said it was improving, compared to 32 that said it was staying the same and 15 percent that said it was worsening, according to an annual Goldman Sachs Asset Management survey of 343 insurance company CIOs and chief financial officers.

With that new optimism, most insurers said they plan to increase their portfolio risk during the next 12 months, according to the survey.

“What we were surprised about was the risk-on attitude,” said Michael Siegel, global head of insurance asset management and liquidity solutions at GSAM.

Investment opportunities are getting better because asset prices are lower, so insurers are steadily and advantageously shifting asset allocations, according to Matt Armas, global head of insurance asset management at GSAM.


“Globally, insurers are being opportunistic” and taking advantage of liquidity and price changes, Armas said. Where they see dislocations, they are willing to add that risk to portfolios. “It’s not in any way accelerated or aggressive. It’s actually quite measured,” he said.

For the first time in the survey’s 12-year history, 68 percent of insurers cited increasing yield opportunities in the current environment as an important factor driving asset allocation decisions — almost triple the 25 percent who said they are decreasing risk due to concerns about equity or credit losses.

Insurers expect private equity, private equity secondaries, emerging market equities, cash and short-term instruments, and private corporate debt to have the best returns in 2023. But they are increasing risk with fixed income duration and credit and locking in higher yields while they can.

According to the survey, 41 percent are increasing allocations to private corporate debt, 37 percent are buying more green or impact bonds, 34 percent are buying more investment grade U.S. corporate debt, and 28 percent are investing more in infrastructure, according to GSAM. Investment grade corporate credit went from near the bottom of the list of assets they wanted in 2022 to near the top when Goldman surveyed CIOs in February. About a quarter of insurers are outsourcing those asset classes to third-party managers.

Insurance companies have slightly different priorities this year depending on their region. In the Americas, the largest allocation change for insurers was to private corporate debt. In Europe, the Middle East, Africa, and Asia, green and impact bonds were the priority — although that asset class was closely followed by private corporate debt, infrastructure, and other assets that insurers as a whole are scooping up.

“I think this is interesting because it shows the markets behaving slightly differently. But I think the themes are still very much yield, privates, and quality,” Armas said.

The opportunities in private markets have led some insurance companies, including MassMutual, to structure themselves so they can manage assets for other insurers and institutions. In February, Massachusetts Mutual Life Insurance Company said it planned to move its direct private investments group and an equipment finance company to its asset management subsidiary Barings — a deal that will give them a leg up in the business of managing insurance assets.