A new report from Janus Henderson Investors has revealed a strong trend of greater caution in investment strategies among Australian insurance companies.
Conducted in partnership with Investment Trends, the 2023 Janus Henderson Insurance Asset Management Report surveyed 25 diverse insurance firms, including general, life and health insurance providers, with half of the respondents being C-suite executives.
"The dynamic nature of the Australian insurance industry presents critical investment challenges,” Janus Henderson head of Australia Matt Gaden said.
“As interest rates rise and geopolitical tensions persist, insurance firms face evolving considerations in their investment strategies.”
Key findings of the report:
- More than 80% of insurance companies are adopting a cautious approach to risk assets, planning to reduce exposure in the next six months.
- About 90% of insurers have implemented or are planning strategic changes in asset allocation within the next year, primarily due to fluctuating interest rates and inflation.
- Government bonds and private debt are increasingly favoured as insurers seek to refine their portfolios amid changing economic conditions.
Reasonable returns and managed risk
The report also indicates that rising interest rates (61%), inflation concerns (58%) and shifting forward-looking expectations (50%) are the primary drivers for these strategic changes.
Additionally, 20% of insurers anticipate increasing their exposure to unlisted infrastructure over the next year.
"Insurers are adopting a wait-and-see approach, showing apprehension towards risk assets,” Janus Henderson director of institutional solutions Greg Clarke said.
“With the adjustment of risk-free rates, they can achieve reasonable returns without excessive risk.
“There remains a clear appetite for private assets, though this presents challenges in stakeholder management."
The study also reveals that while insurers are keenly observing developments in artificial intelligence, substantial integration into operational structures has not yet occurred, mirroring trends in the broader corporate sector.
"Without a shadow of a doubt, rising rates and inflation have been a big concern for all insurers,” Gaden added.
“This has resulted in almost all insurers adjusting their asset allocation to reflect a significant rise in risk-free rates.
“Our findings have been that a large number of insurers have taken an active approach to their fixed interest allocations in order to navigate the current period of interest rate volatility and are looking for ways to protect portfolios in this higher inflationary environment.”