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

Insurers are considering riskier investment strategies to boostdisappointing returns, a survey notes, but analysts contend thatregulators might have objections depending on the carrier inquestion.

Goldman Sachs Asset Management released its insurance CIO Surveytoday titled “Seeking Return in an Adverse Environment.” The surveyPolls 152 insurance companies across the globe representing closeto $4 trillion of asset.

Close to half of those surveyed were life insurers, while theothers were property & casualty, multi-line and reinsurancecompanies.

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

Insurers making up the 26 percent expect to increase investmentallocations 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 wasillustrated in a report from CR Market Strategies Inc. For thefirst quarter of this year, investment income dropped $941 millionto $11.66 billion, based on figures supplied by the InsuranceServices Office.

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

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

He says for several years now, insures have for beenanticipating an uptick in interest rates that hasn't come. Insurerscontinue to be under pressure to improve earnings, and premiumincreases are not robust enough to get there, says Shields.

“This seems like a reasonable—so long as it is controlled—forayinto getting a little bit more yield and more income,” saysShields.

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

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

More importantly, both analysts note, moving into these assetclasses will mean U.S. carriers must have the necessary capacityabove their claims-paying ability to make these riskierinvestments.

Rouff notes that when the U.S. was hit by the recession, it wasthese conservative investing regulations that kept the industryfrom suffering that same fate as other carriers in foreignmarkets.

Shields notes that property and casualty insurers will be morecautious for the next few months as they go through the heart ofhurricane season and keep a close eye on cash flows to make suretheir claims paying ability remains intact through the season.