NU Online News Service, July 23, 3:28 p.m. EDT

Insurers are considering riskier investment strategies to boost disappointing returns, a survey notes, but analysts contend that regulators might have objections depending on the carrier in question.

Goldman Sachs Asset Management released its insurance CIO Survey today titled “Seeking Return in an Adverse Environment.” The survey Polls 152 insurance companies across the globe representing close to $4 trillion of asset.

Close to half of those surveyed were life insurers, while the others were property & casualty, multi-line and reinsurance companies.

On a global basis, 26 percent of insurers expect to increase investment risk while 14 percent expect to reduce the risk.

Insurers making up the 26 percent expect to increase investment allocations in:

• High yield bonds—36 percent of those surveyed.

• U.S. corporates bonds—35 percent.

• Real estate—34 percent.

• Emerging market debt—31 percent.

• Private equity—27 percent.

• Bank loans—25 percent.

• Mezzanine debt—23 percent.

For U.S. insurers, the poor performance of their investments was illustrated in a report from CR Market Strategies Inc. For the first quarter of this year, investment income dropped $941 million to $11.66 billion, based on figures supplied by the Insurance Services Office.

“The only way to be able to increase returns is to increase risk,” says Charles Ruoff, president of CR Market Strategies.

“This is a reactive issue rather than proactive,” observes Meyer Shields with Stifel Nicolaus.

He says for several years now, insures have for been anticipating an uptick in interest rates that hasn't come. Insurers continue to be under pressure to improve earnings, and premium increases are not robust enough to get there, says Shields.

“This seems like a reasonable—so long as it is controlled—foray into getting a little bit more yield and more income,” says Shields.

But U.S. insurers will have to contend with a marketplace that is more regulated than the insurance market overseas.

Rouff says that if a U.S. carrier decides to move into something illiquid, it will need to be rated by the National Association of Insurance Commissioners.

More importantly, both analysts note, moving into these asset classes will mean U.S. carriers must have the necessary capacity above their claims-paying ability to make these riskier investments.

Rouff notes that when the U.S. was hit by the recession, it was these conservative investing regulations that kept the industry from suffering that same fate as other carriers in foreign markets.

Shields notes that property and casualty insurers will be more cautious for the next few months as they go through the heart of hurricane season and keep a close eye on cash flows to make sure their claims paying ability remains intact through the season.

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Insurers Considering Riskier Investments to Boost Returns

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