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Insurers Have Bleak Outlook on Investment Opportunities

Rising interest rates and inflation are now viewed as major risks for insurance company portfolios, according to a Goldman Sachs survey.

The executives overseeing the investment portfolios of insurance companies are growing more pessimistic about the market, according to the latest survey of the sector by Goldman Sachs Asset Management.

The seventh annual survey of insurers found that roughly half believed investment opportunities were getting worse, compared to 36 percent last year. Just 18 percent of the survey's respondents thought opportunities were improving, down from 23 percent in 2017.

"When they take a look at where to invest this year, it's a conundrum," said Mike Siegel, global head of GSAM's insurance asset management business.

According to Siegel, insurance companies are not typically optimistic about their investments, thanks to the low yields of the fixed-income assets that make up the bulk of their portfolios. However, this was the first time since the survey's inception in 2012 that more respondents planned to de-risk rather than increase portfolio risk.

North American insurers were the main instigators, with 21 percent aiming to take risk off the table over the next 12 months, compared to 12 percent planning to add risk. Globally, however, investors were more evenly split: About 17 percent said they would de-risk, while 16 percent planned on increasing the overall risk of their portfolios.

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This year, the biggest macroeconomic worries for insurance companies included the possibility of an economic slowdown or recession, inflation risk, and volatility within credit and equity markets. Although economic slowdowns and volatility were cited as top concerns last year, too, the percentage of respondents who believed inflation was a key risk nearly doubled.

Among risks within their investment portfolios, the largest proportion cited rising interest rates, followed by a deterioration in credit quality and low yields.

Emerging market equities were favored as the likely highest performing asset class, followed by private equity. Meanwhile, government and agency debt was expected to produce the lowest total return, a result Siegel said was in line with expectations of rising interest rates.

Three hundred chief investment officers and chief financial officers representing over $10 trillion in global insurance assets participated in the survey.

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