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Aussie insurers put up guards against risky assets

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By Jessica Penny
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3 minute read

Recent insurer habits have indicated an intention to reduce risk exposure in the next six months, new data has revealed.

The majority of Australian insurers (80 per cent) are expressing a bearish stance towards risk assets, exercising increased discretion around how to best meet the ongoing challenge of a rising interest rate environment, according to the latest findings from Janus Henderson.

In collaboration with Investment Trends, the report unveiled that 90 per cent of respondents – those being 25 insurance firms across general, life, and health insurance providers – have either implemented or are planning strategic shifts in their asset allocation strategies within the next year.

Life insurers were observed to be especially cautious, with 40 per cent of respondents anticipating a significant or moderate change to their risk profile over the next 12 months.

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Rising interest rates (61 per cent), inflation (58 per cent), and changing forward-looking expectations (50 per cent) were among the greatest concerns for insurers reviewing their investment strategy.

Matt Gaden, head of Australia at Janus Henderson Investors, emphasised the evolving considerations that insurance firms face for their investment strategies.

“Without a shadow of a doubt, rising rates and inflation have been a big concern for all insurers,” Mr Gaden said.

“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,” he added.

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.

Meanwhile, one in five (20 per cent) of insurers expect to increase their exposure to unlisted infrastructure over the next year.

Greg Clarke, director of institutional solutions at Janus Henderson Investors, identified stakeholder management as a key asset allocation challenge.

“Insurers are adopting a wait-and-see approach, showing apprehension towards risk assets,” Mr Clarke noted.

“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.”

Furthermore, the report revealed 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.

Aussie insurers put up guards against risky assets

Recent insurer habits have indicated an intention to reduce risk exposure in the next six months, new data has revealed.

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