As inflation and recession concerns recede, there is a noticeable increase in risk tolerance and confidence among Australian insurers, according to the "2024 Australian Insurance Report" by London-headquartered Janus Henderson Investors.
The newfound optimism is met with some caution as survey participants labelled diversification (80%) as the top consideration for strategic investment decisions, followed by interest rates (74%) and inflation (49%).
The report, reflecting the perspectives of the country's most influential insurance investment allocators and decision makers, shows that 43% of insurers have now aligned their investments with their risk budgets – up significantly from just 13% in 2023.
Now in its second year, the report – produced in partnership with Investment Trends – delivers a targeted analysis of the Australian market, showcasing the strategic shifts insurers are making as they adapt to a stabilising economic environment. The study draws on insights from 40 insurance firms, representing a broad spectrum of general, life, and health insurers. Importantly, two-thirds (63%) of respondents were investment management decision-makers, lending considerable authority to the findings. The research was conducted in May 2024.
Key findings from the report:
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Growing confidence in private debt: 45% of surveyed insurers plan to increase their global private debt allocations, and 39% intend to boost their investments in Australian private debt over the next 12 months.
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Alignment with risk budgets: Insurers investing in line with their risk budgets have more than tripled, rising to 43% from 13% in 2023.
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Strategic Asset Allocation: 75% of insurers have recently reviewed or are currently reviewing their Strategic Asset Allocation (SAA).
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ESG considerations: ESG integration continues to rise, with 84% of insurers now incorporating these factors into their portfolios, up from 70% in 2023.
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Equity allocations: Insurers are divided on their future equity allocations, with 24% expecting to increase and 27% expecting to decrease their Australian equity holdings, while global equities see a balanced 18% expecting increases and 18% decreases.
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AI adoption: Nearly a quarter of insurers are piloting AI solutions in their investment processes, a significant increase from zero in 2023, with two-thirds actively monitoring AI development.
To further explore these critical trends and challenges, Janus Henderson Investors, which manages A$100bn ($66.3bn) in assets for insurance firms globally, brought together Australia’s leading insurers at its second annual Insurance Symposium in Sydney yesterday.
Mr Matt Gaden, head of Australia at Janus Henderson Investors, said, “Insurers have moved from a wait-and-see approach in 2023 to an environment of re-risking portfolios with more certainty now that inflation and recession fears have cooled. The drive to diversify portfolios is evident, with a strong focus on enhancing fixed-income allocations, particularly through increased investment in private debt.
He added, “Our findings show that many insurers are making their balance sheets work harder by actively managing their fixed income allocations while also recognising the diversification potential in private and unlisted markets. It’s about getting the balance right.”
Janus Henderson Group is a leading global active asset manager. As of 30 June 2024, Janus Henderson had approximately A$541.2bn in assets under management, more than 2,000 employees, and offices in 24 cities worldwide. Janus Henderson is listed on the New York Stock Exchange
To access the full report, click here.