Asset allocation, insurers focus on private credit and U.S. equities

In asset allocation, the insurers worldwide show a predilection for certain asset categories, in particular i high quality titles (equity) and the private credit, taking into account macroeconomic uncertainties (growth, inflation, rates) and the context of “higher for longer” interest rates. This is what emerges from Global Insurance Survey by Goldman Sachs Asset Management.

The survey, conducted between January and February 2024, collects the opinions of 359 CIOs and CFOs who collectively manage over $13 trillion in assets on their balance sheets and aims to identify trends in the global insurance industry.

The main perceived risks

The survey data shows the five main macroeconomic risks to insurers' investment portfolios:

  • Slowdown/recession economic in the United States (52%);
  • Market volatility credit and equity (48%);
  • Geopolitical tensions (46%);
  • THEnflation (42%);
  • Monetary tightening (27%).

Only 7% of insurers identified a slowdown/recession in China as a major risk, while 6% cited deflationary pressures or large-scale hacker attacks. Inflation concerns have receded at 42% compared to 55% recorded last year.

Insurers' expectations for a U.S. recession this year fell to 16% from 44% in 2023. However, fears of a long-term recession persistas 50% of respondents estimate a recession in the United States in the next 2-3 years, compared to 38% in 2023.

Asset allocation preferences

The data favors private credit, high-quality debt and risk appetite. Among those interviewed, 83% expect Treasury yields US at 10 years at the end of 2024 are at or below to those who were registered when the survey was conducted, while 17% expect them to exceed 4.25%.

Based on this, insurers have selected the five main asset classes for which they expect the highest total return over the next 12 months. Four of the five main asset classes involve private credit and high-quality credit:

  • Private credit (53%);
  • US stocks (46%);
  • Government and agency debt (34%);
  • Investment grade private debt (33%);
  • Investment grade corporate debt developed markets and private equity (31% each)

In contrast, only 5% of insurers expect to see the highest returns in commercial mortgage-backed securities and 6% in commercial mortgage loans. Despite economic uncertainty, 27% of insurers plan to increase risk in their overall portfolios.

To achieve higher returns, 42% intend increase duration risk in 2024. This is the highest level ever reached in the survey's history, up from 38% in 2023. Only 5% expect to reduce duration.

For the next year, 35% of insurers plan to increase credit risk in their portfolios, despite 59% of respondents expressing concern that the credit cycle is entering an advanced stage.

Private credit beats private equity

Insurers expect the headlines US equities and private credit offer i higher total returns in 2024, having been indicated as the first choice by 15% of those interviewed. The private equity (PE) placed at third place with 10%, together with government and agency debt. For the first time, the private equity asset class did not reach the top two positions.

For 2024, insurers predict that the cryptocurrencies, real estate stocks and mortgage loansthe salespeople will offer i lower yields.