Insurers Increasingly Interested in Private Credit, Per GSAM

Insurers who manage $13 trillion in the Americas and APAC see high returns in private credit, according to Goldman Sachs’ 13th annual global insurance survey.

Insurers globally expect continued industry consolidation, a possible U.S. recession within a few years and making greater allocations to private credit investments as inflation and interest rates decline, according to Goldman Sachs Asset Management’s annual insurance survey, released Tuesday.

The 13th annual report, “Risk and Resilience,” surveyed key decisionmakers at insurance firms about their outlook for 2024 and beyond.

Nearly half of the insurers surveyed said there will be consolidation in the insurance industry. Only 4% said industry consolidation will deaccelerate, while 51% said consolidation will stay neutral, continuing at its current pace.

The market is searching for equilibrium, according to Goldman’s summary. While insurers are concerned about volatility and geopolitical tensions, a majority of insurers in the survey believe rates have peaked: 98% of them said the Federal Reserve will cut rates this year. Among all respondents, 59% said the Fed Funds rate will close out the year between 4.25% and 4.75%, a full percentage point below the current 5.25% to 5.50% range.

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Of respondents, 16% said that they think a U.S. recession will happen this year, while half said a recession will happen in the next two to three years.

“A more resilient economic outlook caused a rally in fixed-income and equity markets, and this environment set the stage for renewed risks and opportunities for all of our insurers,” said Matthew Armas, Goldman’s global head of insurance, in a press roundtable.

Insurers Increasingly Interested in Private Credit

Goldman Sachs noted the increasing interest in private credit among insurers, especially among insurers based in the Americas and Asia. According to the survey, 53% of insurance executives surveyed believe private credit will be among the five best-performing asset classes in 2024. U.S. equities ranked second, named by 46% of respondents.

“This is the first time we have seen a fixed-income asset as the highest expected return asset class,” Armas said.

According to the survey, 35% of insurers want to increase their private credit risk, and 33% want to increase allocations to private debt. Still, most insurers are worried about entering a later stage of the credit cycle.

In the Americas, 60% of respondents said they plan to increase their net allocations to private credit over the next 12 months. In the Europe, Middle East and Africa region, this figure was 35%, while it was 52% among respondents in Asia.

“As we deal with the effects of higher-than-expected inflation, we see continued appetite for private credit opportunities,” wrote David Miller, Goldman’s co-head of Americas direct lending, in the survey. “As a powerful complement to traditional fixed income, private credit can offer incremental income return enhancement, and diversification benefits. In periods of uncertainty, private credit can also offer downside risk mitigation and resilient returns.”

Increased Role for ESG Considerations

Insurers are increasingly interested in environmental, social and governance factors: In 2017, only 16% of U.S. insurers, 45% of EMEA insurers and 67% of Asian insurers said ESG was either a primary consideration or one of several considerations for their portfolios. In 2024, those numbers jumped to 68%, 95% and 95%, respectively. Still, in the Americas, 32% said ESG and impact investing is not a consideration. That figure lags at 5% in other regions.

Globally, 59% of respondents said they used ESG data to make investment decisions, while 23% said they did not, but intend to. Of those surveyed, 81% said they used negative screening and avoidance tools when considering investments, and 5% said they do not, but intend to in the future.

Almost three-quarters of insurers are either making dedicated ESG investments or intend to, with 53% of respondents saying they have made ESG investments in their portfolios, and 21% saying they intend to.

Still, there are some hurdles for the ESG-curious. A plurality of insurers—45%—said the biggest hurdle to implementing ESG strategy is access to reliable and standardized data. Another 19% said the main hurdle is the availability of investments aligned with objectives.

Approximately 35% of respondents globally said they have set a net-zero target, and 24% are considering one. However, insurers in the Americas overwhelmingly do not have plans for one. Of insurers in the Americas, 76% said they do not have a net-zero target, compared with 17% in EMEA and 14% in Asia. Only 9% of Americas-based insurers said they have a net-zero target, compared with 54% in EMEA and 52% in Asia.

Of those globally who do have a net-zero target, 11% said they are targeting a net-zero portfolio between 2024 and 2030. Another 10% said this will be achieved between 2031 and 2040, while a vast majority of respondents, 75%, said this target will be achieved between 2041 and 2050. Another 4% of insurers said a net-zero target will be achieved beyond 2050.

“ESG remains a key investment decision consideration for the vast majority of our client base,” Armas said.

Dangerous weather has been a big factor in driving up insurance premiums in many markets in the U.S. According to the report, 35% of respondents said climate change and the respective market price increases will force insures to exit certain businesses, with 43% of North American insurers holding this view.

Globally, 19% of insurers said climate change has made certain extreme weather events uninsurable, with 9% of respondents in the Americas holding this view, and 29% and 26% of respondents from the Asian and EMEA regions, respectively, holding this view.

Artificial Intelligence

Of the insurers surveyed, 20% said they are currently using artificial intelligence, while 51% said they are considering using it; 20% said they are not considering using AI at all. This was the first year that Goldman Sachs surveyed insurers on AI use.

A majority of insurers said they are using AI to reduce operating costs, with 73% saying this was their company’s use of AI. Of the respondents, 39% said they were using artificial intelligence for insurance risk underwriting, while 20% said they were using AI for evaluating investments.

GSAM surveyed 296 insurance CIOs, 42 CFOs and 21 individuals with both titles who represent $13 trillion in assets, roughly half of global insurance assets under supervision, Goldman estimates.

Out of the respondents, 41 were from the Americas, 43 were from EMEA and 16 from Asia. GSAM surveyed a variety of insurers: 38 were life insurers, 31 were property and causality/non-life insurers, 17 were multi-line insurers, seven respondents were reinsurers, six were health insurers and one respondent was a captive insurer.

According to GSAM, responses were collected between January 17 and February 9.

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Private Equity Moves Into Insurance: Rewards Are Strong, but So Is Risk

Tags: Alexandra Wilson-Elizondo, Goldman Sachs Asset Management, GSAM, insurance, insurers, Matt Armas, Private Credit

Investors are optimistic for the remainder of 2024 and overwhelmingly expect the U.S. economy to experience a soft landing—either no recession or a mild one—in the wake of tightened interest rates, according to a survey of institutional investors conducted by Commonfund.

The asset manager’s annual survey collected responses from 203 institutional investors during the firm’s 26th annual Commonfund forum from March 10 through March 12. Those surveyed represented endowments, foundations, pension funds, operating charities, health care organizations, family offices and RIAs.

The surveyed investors were strongly optimistic (87%) about their ability to achieve their organization’s target returns over the next decade. More than half (55%) of those surveyed reported being “cautiously optimistic” about reaching their targeted returns; while another 32% reported being “very bullish” about returns, up about 10 percentage points from 2023. Another 13% reported “feeling nervous” about their investment prospects, down eight percentage points from last year.

Optimism Ahead

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An overwhelming majority of respondents in the survey said they expect the U.S. Federal Reserve to maneuver to a soft landing, with 51% saying it is likely the Fed can deliver an economic soft landing, and another 27% saying they find it very likely. Meanwhile, 22% of respondents said achieving a soft landing is unlikely.

“The institutional investment community remains optimistic in Fed Chair [Jerome] Powell’s ability to engineer a soft landing in 2024, despite U.S. and global market uncertainty,” said Mark Anson, Commonfund’s CEO and CIO, in a report on the survey results.

Risks and Concerns

One of the biggest concerns among those surveyed was the economic impact of the upcoming U.S. elections, with 61% of investors including it among their top concerns. Other major concerns included inflation and interest rate adjustments (42%) and current wars and global conflicts (27%).

“With the impending U.S. election and ever-shifting geopolitical environment, this will be a pivotal year that investors are, understandably, closely watching,” Anson said in the report. “It is promising that investors increasingly anticipate about the same or even higher than average stock market returns, a continued trend upward since 2022.”

Investments and Returns

Half of those surveyed said they expect private equity will deliver the best total returns over the next 12 months; however, this is a 20% decline from last year’s survey, when more than 70% of respondents said PE would deliver the best returns. Respondents plan to increase their private equity allocations, with 45% saying they plan to increase allocations to the asset class. Investors are also bullish on private credit, with 27% of respondents saying they plan to increase their allocations to the asset class this year.

“Long-term investor confidence in alternative asset classes continues to grow, as this group predicts strong returns in the future,” Anson said. “It will be interesting to see how they perceive new investment opportunities, such as private credit and new technologies, like AI, in the years to come.”