Australian insurers bet big on investment risks as inflation fears fade

Australian insurers are increasingly willing to take on greater investment risks as inflation and recession fears subside, according to the 2024 Australian Insurance Report by Janus Henderson Investors, an active asset manager that oversees A$100 billion in assets globally for insurance firms.

The report, produced in partnership with Investment Trends, offers an in-depth look at the Australian insurance market. It highlights how insurers are adjusting their strategies in response to a stabilising economic environment, confirmed by Swiss Re’s latest economic forecast.

Janus Henderson’s survey, conducted in May 2024, includes responses from 40 firms across the general, life, and health insurance sectors, with 63% of respondents being investment management decision-makers.

Australian insurers align investments with risk budgets

The 2024 Australian Insurance Report, based on the insights of key insurance investment professionals, revealed that 43% of insurers are now aligning their investments with their risk budgets, a notable increase from 13% in 2023.

When asked about their strategic investment priorities, respondents identified diversification (80%) as the most key factor, followed by interest rates (74%) and inflation (49%).

Matt Gaden (pictured), head of Australia at Janus Henderson Investors, said insurers have shifted from a cautious stance in 2023 to a more confident approach in re-risking portfolios, thanks to diminishing inflation and recession concerns.

“The drive to diversify portfolios is evident, with a strong focus on enhancing fixed income allocations, particularly through increased investment in private debt,” he said.

Key insights from the 2024 Australian Insurance Report

• Rising interest in private debt: 45% of the insurers surveyed plan to increase their global private debt investments, while 39% intend to expand their Australian private debt allocations in the next 12 months.
• Risk budget alignment: The percentage of insurers investing in line with their risk budgets has risen to 43%, up from 13% in the previous year.
• Strategic asset allocation (SAA) reviews: 75% of insurers have recently reviewed or are currently reviewing their SAA strategies.
• Environmental, social, and governance (ESG) integration: ESG factors are now included in the portfolios of 84% of insurers, an increase from 70% in 2023.
• Equity investment plans: Insurers are divided on their future equity allocations, with 24% expecting to increase and 27% expecting to reduce their holdings in Australian equities. In global equities, 18% of respondents anticipate increases, while another 18% foresee decreases. These plans come on the heels of Australia’s foreign investment review framework, managed by the Foreign Investment Review Board (FIRB), remaining transparent and welcoming to foreign investments.
• Artificial intelligence (AI) in investments: Nearly a quarter of insurers are currently piloting AI solutions in their investment processes, a rise from none in 2023, with two-thirds closely monitoring AI developments.

Gaden noted that insurers are making more active use of their balance sheets by managing fixed income allocations while exploring diversification opportunities in private and unlisted markets.

“It’s about getting the balance right, and I’m delighted that at Janus Henderson, we’re partnering with some of the largest insurers globally to help them achieve this,” he said.

Janus Henderson hosted its second annual Insurance Symposium in Sydney yesterday, August 14. This event provided a platform for leading Australian insurers to discuss latest trends, strategic changes, and the current investment climate within the insurance industry.