Insurers make strategic adjustments in their asset allocation as inflation concerns them again
31 MAR, 2025
With policymakers around the world reviewing their approaches to trade, immigration, and taxation, the potential impact that inflation may have on portfolios is once again topping the list of global investment risks.
According to the fourteenth annual insurance survey conducted by Goldman Sachs AM, titled “The Great Pivot”, the five macroeconomic issues that pose the greatest risks to insurers' investment portfolios are:
- Inflation (52%)
- Slowdown/recession in the U.S. (48%)
- Volatility of credit and equity markets (47%)
- Geopolitical tensions (43%)
- Tariff/trade disputes (32%)
“As investors wait for monetary policy to become clear, many are worried about the prospect of markets simultaneously facing a rise in inflation and a slowdown in economic growth in the United States. However, since 76% of insurers claim that the yield on the 10-year US Treasury will be between 4% and 5% by the end of 2025, we expect underlying inflation to continue falling and our growth prospects in the US remain optimistic. Despite the more pessimistic views of representatives from Eurozone and China companies, there are viable investment opportunities for discerning investors seeking to improve their risk-adjusted return,” added Mike Siegel.
The survey was conducted during the past months of January and February among 405 investment managers and CFOs of insurance companies around the world, who manage a total of 14 trillion dollars in assets.
The growth of private assets shows no signs of slowing down
When asked which asset classes will offer the highest total return over the next 12 months, insurers were favorable to private assets: private credit (61%) topped the list for the second consecutive year. The top five are:
- Private credit (61%)
- US equity (57%)
- Private stocks (55%)
- Secondary private stocks (30%)
- High yield debt (28%)
"The private credit market has undergone a significant transformation over the last decade. We expect it to continue expanding into 2025. Through this growth, insurers will have ample opportunities to diversify their direct loan portfolios while pursuing attractive risk-adjusted returns," said Matt Armas, global head of insurance at Goldman Sachs Asset Management.
In fixed income, 35% of insurers expect to increase their duration risk in 2025, down from 42% a year ago. This shift suggests cautious optimism that the interest rate environment will remain attractive to investors seeking returns.
Changes in asset allocation point towards the private sector
The bullish outlook for private assets means that many insurance companies anticipate increasing their allocations:
- 58% to private credit
- 40% to investment grade private debt
- 36% to asset-based financing
- 32% to infrastructure debt
- 29% to private equity
Meanwhile, only 17% of insurers plan to increase their allocations to US equities, and even fewer (10%) to European ones.
The growing adoption of AI drives sector consolidation
Operational synergies and economies of scale were identified by 68% as the main drivers of increased mergers and acquisitions activity in the insurance sector. The growing adoption of Artificial Intelligence (AI) to improve efficiency could be a catalyst for further consolidation: 90% claim to currently use, or are considering using, AI; this figure is higher than 80% in 2024. Of those planning to adopt AI, 81% cited reducing operational costs as their main benefit.
“As artificial intelligence technology evolves and improves, it will undoubtedly leave a lasting mark on insurers around the world. Some improvements will benefit risk underwriting and operational efficiency, which could have broader implications in the industry as companies navigate the opportunities and challenges," concluded Matt Armas.
