Insurance chief investment officers are more optimistic aboutinvestment opportunities than last year, and are looking to enhancereturns by increasing allocations to equities, alternatives andilliquid assets, a new report says.

The Goldman Sachs Asset Management (GSAM) 2013 CIO Survey findsthat insurers continue to view the investment environment aschallenging, but 31 percent of insurers globally believe investmentopportunities are improving, compared to just 14 percent in2012.

The survey also finds that more than 40 percent of CIOs intendto increase overall portfolio risk, while less than 10 percentintend to decrease risk.

“Insurers are recognizing the difficulty of generating adequatereturns by holding predominantly high grade portfolios and largecash balances,” a report accompanying the survey results says.“CIOs intend to increase allocations to assets that offer highertotal return potential, interest rate protection and/or anilliquidity premium, including equities, bank loans, real estate,commercial mortgage loans and private equity.”

The report notes that liquid investments such as cash,short-term instruments, and government and agency debt “areanticipated to be amongst the lowest returning asset classes, andCIOs plan to decrease allocations accordingly.”

Additionally, the survey finds that while CIOs still view lowyields as the greatest investment risk (52 percent), they aresimultaneously concerned about the impact of rising interest rates.“The percentage of insurers citing rising rates as their mostsignificant investment risk doubled to 32 percent from the prioryear,” the report says. The focus on preparations for risinginterest rates and inflation stem from ongoing monetary easing,says the report.

As far as macroeconomic concerns, accommodative monetary policyreplaced the European debt crisis as the the greatest risk in thisarea. The survey shows that 23 percent view accommodative monetarypolicy as the most significant macroeconomic risk, while 18 percentsaid credit and equity market volatility, and 14 percent saidinflation.

Meanwhile, the GSAM report notes that chief financial officershold more conservative views regarding the appropriate level ofinvestment risk than CIOs do. While 40 percent of CIOs intend toincrease overall portfolio risk, nearly 30 percent of CFOrespondents believe their peer group is taking on excessiveinvestment risk, while 19 percent believe their peer group is nottaking sufficient investment risk.

For the survey, GSAM Insurance Asset Management partnered withKRC Research. Responses came from 189 CIOs, 54 CFOs and 9individuals who serve as both the CIO and the CFO. The global studyrepresents over $6.0 trillion in insurance balance sheet assets,and includes representatives from both P&C and lifeinsurers.