Insurers are more optimistic about the global economic recovery than in previous years, research has found.
A survey by Goldman Sachs Asset Management (GSAM) has revealed only one third (35%) of insurers believe the industry is in the late stage of the credit cycle, compared to three quarters (75%) of respondents last year.
GSAM said this finding suggests insurers believe the credit cycle has lengthened and that credit quality remains stable.
This belief was strengthened by the fact that only 2% of the 300 CIOs and CFOs at global insurance companies surveyed think credit spreads will ‘widen significantly’ this year, while the majority (53%) believe they will ‘modestly tighten to modestly widen’ and 36% feel they will ‘moderately widen’.
This view on the cycle has seen insurers more bullish on corporate credit allocations with a third planning to increase their exposure to credit risk, GSAM added.
In addition, more than 80% of respondents anticipate an increase in 10-year US Treasury yields, and 88% believe S&P 500 index returns will be positive in 2017 compared to last year when more than half anticipated negative returns.
Only 36% of survey respondents feel the general investment opportunity set is getting worse, representing the lowest level of underlying pessimism since the survey began in 2013.
“The survey clearly points to a favorable view on the global economy and optimism for higher equity prices and higher interest rates,” said GSAM global head of insurance asset management Michael Siegel. “This optimism is translating into greater risk taking in equities, less liquid assets, and in particular, fixed income credit.”
However, respondents were concerned by certain macro-economic factors, particularly political event risk which was ranked top worry by 26%. This was followed by economic slowdown/recession in the US (25%) and credit and equity market volatility (18%).
Elsewhere, insurers were more concerned by inflation than deflation. This was borne out in the findings with 62% of respondents viewing inflation as a worry in the next three years, compared to only 16% concerned by deflation.
