Insurers are showing a “noticeable increase” in investment risk tolerance and are looking at more portfolio diversification, a report says.

A survey of general, life and health companies shows they have moved from a wait-and-see approach last year to re-risking portfolios with more certainty now inflation and recession fears have cooled, according to Janus Henderson Investors head of Australia Matt Gaden.

“The drive to diversify portfolios is evident, with a strong focus on enhancing fixed-income allocations, particularly through increased investment in private debt,” he said.

“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.”

Janus Henderson’s Australia-based investment teams manage $10.3 billion of insurance-related assets and the international group manages $100 billion in assets for insurance companies.

The 40 survey participants in the Australian Insurance Report, produced with Investment Trends, range from smaller domestic companies with single lines of business to global groups with a local footprint. A symposium on report findings was held last Wednesday in Sydney.

Some 45% of surveyed insurers plan to increase their global private debt allocations, and 39% intend to lift their investments in Australian private debt over the next year, the report says.

Many insurers have taken on additional risk in their investment portfolios over the past year, with 43% of respondents now “in line with their risk budget”, compared with 13% a year ago.

The report also shows artificial intelligence is becoming part of investment processes.

More than 20% say a trial or pilot is under way, compared with none last year, and almost one-third of respondents with more than $10 billion in assets under management have pilot schemes.

“The role that artificial intelligence plays within the insurance businesses continues to grow,” the report says. “Over the past 12 months, we have seen insurers move from simply monitoring the development of AI and considering how it may be used in the future to implementing trials and pilot programs.”

More than 80% of respondents say environmental, social and governance considerations are implemented in portfolios, up from 73% last year, with corporate policy the primary driver.

In the life sector, 71% of respondents have a net zero target, while 21% are looking to implement one. In general insurance 60% have a net zero target and 40% are looking into it.