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Cautious approach to risk assets: Over 80% of insurance firms express a cautious stance towards risk assets, signalling an intent to reduce exposure over the next six months.
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Strategic shifts on the horizon: 90% of insurers have either implemented or plan to make strategic shifts in their asset allocation strategies within the next year, largely influenced by interest rate and inflation dynamics.
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Focus on government bonds and private debt: Insurance firms are increasingly interested in government bonds and private debt, seeking to refine their investment portfolios among changing economic conditions.
Janus Henderson Investors has released key findings from its 2023 Janus Henderson Insurance Asset Management Report. The research report offers a deep dive into the evolving landscape of asset allocation among Australian insurers, driven by factors including inflation, rising rates, volatile equity markets and insurance claim trends.
In collaboration with Investment Trends, the report draws on insights from 25 insurance firms, representing a diverse range of general insurance, life insurance, and health insurance providers. Crucially, 50% of the respondents were C-suite executives, further bolstering the credibility of the results. The study focuses exclusively on the Australian market.
During the Janus Henderson Insurance Symposium, held in Sydney in August 2023, industry leaders and experts convened to address and discuss these critical trends and challenges. Janus Henderson manages AUD$86 billion in assets for insurance firms globally, including AUD$11 billion in Australia. The firm’s fixed income expertise is instrumental in assisting insurance firms in navigating the current environment of interest rate volatility and spread widening.
Also read: Bonds Are the Gateway to Understanding the Stock Market
Key highlights from the report:
- More than 80% of insurers express a cautious and bearish stance towards risk assets, indicating an intention to reduce risk exposure in the next six months.
- Rising interest rates (61%), inflation (58%) and changing forward-looking expectations (50%) were the top three concerns for insurers reviewing their investment strategy.
- A significant majority (90%) have either implemented or are planning strategic shifts in their asset allocation strategies within the next year, largely influenced by interest rate and inflation dynamics.
- In terms of fixed interest, government bonds and private debt were the top two areas of interest for insurance firms seeking to refine their investment portfolios.
- For alternative assets, one in five (20%) insurers expect to increase their exposure to unlisted infrastructure over the next year.
Matt Gaden, Head of Australia at Janus Henderson Investors, emphasised the significance of the report, stating:
“The dynamic nature of the Australian insurance industry presents critical investment challenges. As interest rates rise and geopolitical tensions persist, insurance firms face evolving considerations in their investment strategies. This report provides one of the most comprehensive insights into the investment views of insurance companies in Australia.”
Greg Clarke, Director of Institutional Solutions at Janus Henderson Investors, identified stakeholder management as a key asset allocation challenge, stating:
“Insurers are adopting a wait-and-see approach, showing apprehension towards risk assets. 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 research underscores that insurers are exercising their discretion around how to best meet the ongoing challenge of a rising interest rate environment, and actively repositioning their portfolios accordingly.
Matt Gaden further said, “Without a shadow of a doubt, rising rates and inflation have been a big concern for all insurers. 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. I’m delighted that here at Janus Henderson we’re already working with some of the largest insurers around the globe to help them do just that.”
Furthermore, the report reveals that while most firms are actively monitoring developments in artificial intelligence, none have yet integrated substantial changes into their operational structures, reflecting the broader corporate environment.
