Insurance Giants Pivot Hard Into Private Assets as Inflation Fears Rise, Goldman Study Finds

What's New

According to Goldman Sachs Asset Management's Global Insurance Survey 2025, 62% of insurance companies plan to increase allocations to private assets within the next year, with Private Credit leading the charge as 61% of respondents rank it among the top five highest-returning asset classes for 2025. This marks a dramatic shift from traditional public market investments as insurers navigate persistent inflation concerns and seek higher risk-adjusted returns.

Why It Matters

This "Great Pivot" represents a fundamental transformation in how the $14 trillion global insurance sector deploys capital, signaling both opportunity and risk as these massive institutional investors chase yield in less liquid markets. The trend could reshape private credit availability while potentially creating new vulnerabilities in insurance balance sheets if economic conditions deteriorate.

Big Picture Drivers

• Inflation anxiety: 52% of insurers cite inflation as their greatest macroeconomic risk, up from 42% in 2024, driving search for real return protection

• Yield hunger: Persistent low interest rate environment despite recent hikes forces insurers to extend duration and credit risk to meet liability obligations

• Regulatory evolution: Favorable regulatory changes making private markets more accessible to institutional investors seeking diversification

• Technology adoption: 90% of insurers using or considering AI implementation, primarily for operational cost reduction and risk assessment improvements

• Market consolidation: 68% expect M&A activity to accelerate, driven by pursuit of operational synergies and economies of scale

Key Insights

• Credit quality confidence remains high: Despite increased risk appetite, 55% of insurers believe credit quality is stable while only 32% expect covenants in private credit deals to loosen, suggesting disciplined underwriting standards persist even as competition intensifies

• Duration extension accelerates: 35% plan to increase duration risk compared to only 8% decreasing, representing a net 27% shift as insurers lock in higher yields amid expectations of Federal Reserve cuts

• Regional strategy divergence intensifies: Americas leads with 64% increasing Private Credit allocations, APAC shows strongest Private Equity appetite at 48%, while EMEA focuses on Infrastructure at 25% - reflecting distinct market opportunities and regulatory environments

• AI transforms operations but investment opportunities concentrate: 81% use AI primarily for cost reduction, while investment opportunities cluster in infrastructure/data centers (66% globally) and utilities/power production (44% in Americas)

• Climate risk drives business model changes: 42% believe climate change may force exits from certain business lines, with Americas showing highest concern at 53%, while 85% in EMEA already consider climate scenarios in strategic asset allocation

By The Numbers

• $14 trillion: Combined assets represented by 405 surveyed insurance executives across global markets

• 56%: Net increase in Private Credit allocations planned, the highest among all asset classes surveyed

• 83%: Insurers expecting positive S&P 500 returns in 2025, with 50% forecasting 5-10% gains

• 86%: Respondents anticipating Federal Reserve rate cuts by end of 2025 from current 4.50% level

• 46%: Global insurers predicting US recession within next three years, down from 67% in 2024

Key Trends to Watch

• Private Credit expansion will accelerate as insurers seek 55% stable credit quality while 32% prepare to take additional credit risk.

• Open-ended private vehicles gain traction with 54% of insurers considering these structures to avoid J-curve effects and capital call uncertainty.

• ESG integration continues with 73% implementing dedicated sustainability strategies, though primary consideration levels declining year-over-year.

• Regional divergence emerges as Americas insurers favor Asset-Based Finance while APAC focuses on Private Equity and EMEA emphasizes Infrastructure.

The Wrap

The insurance industry's massive capital reallocation toward private assets reflects both opportunity and necessity in today's economic environment. While this pivot promises higher returns and diversification benefits, it also concentrates risk in less liquid markets just as economic uncertainty persists, making execution and timing critical for these institutional giants managing policyholder obligations.