Asset Management
Hold the Line

• Terrence Dopp
• September 2020
• 

Despite the COVID-19-related economic turmoil in the first half of 2020, insurers are likely to hold onto investments they'd pursued in recent years amid the low interest rate environment as the speed of rebound and Federal Reserve actions cause the market to tighten up, according to Goldman Sachs Asset Management.

Matt Armas, global head of insurance fixed income portfolio management, said during the 2020 GSAM Insurance Roundtable some companies that went to reduce their risk in late March or April found it tough to do so because liquidity “wasn't there.” A market springing back to where it was at the beginning of the year also shifts the calculus on whether those losses will be realized, he said.

“Conceptually, we went from fine to panic with never really stopping at nervous,” Armas said. “From a realized loss perspective, if you went to reduce risk in late March into early April, it was very hard to do because the liquidity wasn't there. So you generally held onto your positions and now you move into a world where the liquidity is there, but if you're reducing your risk you're wondering 'can I get it back?'”

GSAM's “Ready, Set, Reset” report of insurance industry investment officers found investments in private credit, private equity and securitized assets continued and in some cases accelerated amid the pandemic, which prompted lockdowns globally that curtailed economic activity. The report, which was based on pre-COVID-19 surveys with 273 chief investment and operating officers globally, found little changed in terms of long-term investment strategies as many had begun positioning for a possible downturn.

Investment in the less liquid asset classes in order to earn additional premium is primarily an Americas phenomenon as European regulators require greater capital reserves for things like securitized products, Mike Siegel, global head of insurance asset management, said. In Japan, in particular, there was a movement toward greater investment in collateralized loan obligations and a resulting pressure by regulators to hold them down, he said.

“The amount of realized losses is still going to be on the low side of things,” Siegel said, adding many companies shed investments in energy and lower rated companies. “The unrealized losses grew quite dramatically. The unrealized losses shrank dramatically given the recovery in the markets.”

The report also found growth in so-called environmental, social and governance investing, with 95% of those surveyed saying some hurdles remain. It also found a 14% year-over-year increase in investments in insurtech, with 60% reporting that they do so.