Insurers, long squeezed by low rates, now brace for a rise NEW YORK (Reuters) - Insurance companies are still very concerned about low interest rates pinching their investment profits. But for the first time in years, their second biggest concern is the risk of an unexpected spike in rates hurting investment portfolios instead. More than half of the global insurance industry views low yields as the biggest near-term investment risk, followed by 32 percent citing rising rates, according to a survey released this week by Goldman Sachs Asset Management (GSAM), a unit of Goldman Sachs Group Inc (GS.N). The portion of insurers citing low rates as the top risk has dropped from 65 percent last year, while the portion citing high rates doubled, according to the survey. "There is a real concern that once that transition starts from the rate environment we're in today to the next rate environment, that transition will be a difficult and volatile one," said Robert Goodman, global head of insurance relationships for GSAM's Insurance Asset Management business. GSAM polled 252 people who oversee investments and finances of global insurance firms, and manage about $6 trillion worth of assets, or roughly 25 percent of the industry. The poll showed that insurers are much more optimistic and much less afraid than they were a year ago, when the European debt crisis was still rattling markets. Insurers are now moving out the risk curve to invest new money in assets like stocks, private equity and real estate, partly in response to concern over the potential for rising rates, Goodman said. Insurers are betting the highest returns this year will come from stocks, with emerging market equities as a top pick, followed by U.S. equities, private equity and real estate, according to the survey. That is a shift from 2012, when GSAM clients cited debt products including mezzanine debt and high-yield debt. Insurers now view many bonds as too expensive, Goodman said, after a multi-year rally in products ranging from Treasury bonds to high-yield debt. Now clients are either looking further down the credit spectrum to riskier bonds, or choosing other asset classes to make new investments, he said. Insurance companies earn money not just from selling insurance products, but from investing their cash flows. Low rates have weighed on investment portfolios because insurers are big bond buyers and typically hold those assets to maturity and collect interest payments. As old, higher-yielding bonds pay off, insurers have been forced to put new money into lower-yielding debt that pays less. Insurers including Allianz SE (ALVG.DE), Travelers Companies Inc (TRV.N), Chubb Corp (CB.N), Aetna Inc (AET.N) and American International Group Inc (AIG.N), have all cited low rates as a profit challenge in recent years, though pure life insurers have gotten hit hardest. There are expectations that rates will begin to rise, perhaps as soon as next year, as long as economies improve and central banks including the U.S. Federal Reserve start to pull back from monetary easing policies. Just on Monday, the insurer Ace Ltd (ACE.N) raised its profit forecast on an expectation that rates will rise. Mike Siegel, GSAM's global head of insurance asset management, said insurance clients are hoping that rates rise slowly, to allow them to adjust their portfolios gradually. "If it's an unanticipated, very steep rise, that will be harmful to all the financial markets," he said. Reporting By Lauren Tara LaCapra; Editing by Chris Reese