Australian insurers have significantly shifted their investment strategies, increasingly turning to private credit and asset-backed lending as part of a broader re-risking of portfolios, according to the 2025 Australian Insurance Report by Janus Henderson Investors.
The report, released on Thursday, 7 August, has captured insights from 20 leading insurance firms across the general, life and health sectors.
It found that 47 per cent of insurers plan to increase investment portfolio risk in the next 12 months. Among those currently underweight their risk budgets, 70 per cent said they intend to increase exposure over the coming year.
This pivot came amid a stabilising economic outlook and declining inflation, which has encouraged insurers to explore alternative avenues for yield and diversification.
The report revealed that geopolitical risk has now overtaken inflation and recession as the top concern, with 82 per cent of insurers having reviewed – or currently reviewing – their strategic asset allocation.
Private credit emerged as a key theme in fixed income innovation, with 55 per cent of insurers already holding exposure, primarily through global direct lending.
Additionally, asset-backed lending has gained traction due to its collateral-focused risk management and shorter duration characteristics, providing insurers with both security and flexibility.
Alongside this, unlisted infrastructure and short-duration fixed-rate corporate bonds have grown in popularity as insurers seek to improve returns and reduce reliance on traditional beta exposures.
According to Janus Henderson, this aligns with a broader trend of conservative positioning, with half of respondents remaining underweight in their risk budgets (up from 40 per cent in 2024), indicating elevated caution amid persistent market volatility and ongoing regulatory pressures.
Moreover, the report also found that 90 per cent of insurers now integrate ESG considerations into their portfolios, largely driven by corporate policy and the growing importance of social impacts.
Meanwhile, the adoption of AI is beginning to take hold, with 12 per cent of insurers currently using AI tech in their investment processes, while 27 per cent are planning to launch pilot studies within the next 12 months, marking a fourfold increase compared to 2024.
While most early applications have focused on operational efficiency, the use of AI in investment strategy is expected to expand, according to Janus Henderson.
Looking ahead to 2025, insurers have expressed strong intentions to enhance credit allocations and diversify private credit exposure beyond direct lending, particularly into asset-backed lending.
Many are also pursuing strategies to hedge credit spread risk using low beta solutions and dynamic overlays such as credit default swaps.
Head of Australia at Janus Henderson Investors, Matt Gaden, said insurers “are clearly shifting gears”.
“The move from defensive positioning to proactive portfolio re-risking reflects a broader industry trend toward embracing private markets and seeking differentiated sources of return,” Gaden said. “Private credit is emerging as a cornerstone of fixed income strategy, offering both yield and diversification.”
