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In conversation with Gary Zhu, Deputy Chief Investment Officer - Insurance, AllianceBernstein

In conversation with Gary Zhu, Deputy Chief Investment Officer - Insurance, AllianceBernstein

Q: How are recent macroeconomic shifts impacting the insurance sector's approach to risk and investment strategies?

Lot of macro activities that has gone on that is feel like we're in the confluence of a pivotal point where US economy seems to be on a strong foot in the hands. What led to the Fed started cutting interest rates to allow the consumers and corporations to relieve from a very high interest rate environment. Rate environment? What that really led to, from an insurance asset management perspective, is that, like the investment thesis that we have had in the years, starting point matters most, insurance company have a lot of corporate risk and commercial real estate risk into the portfolio in the economy that is slowing, while it's not slow enough to cause concern and default to negative rate of migrations. Yet we thought that it's best for insurance company to start building a more diversified portfolio by moving away or reducing the overall asset allocation from commercial real estate or corporate risk diversify into US housing risk and as well as consumer risk, so which then also took that really nicely in terms of like the area that securitization market is able to offer to insurance clients.

Q: How are insurance companies adjusting their asset allocation in light of changing interest rates and market volatility?

It's an interesting concept in the sense that, like, if you think about insurance portfolio, what a lot of what we do is reliability driven, so that's a focus. Really means is that your product makes, what is a live products, or a annuity products, or for PNC companies, the way that we manage the portfolio is very different. So for a liability product that you pass on all of your interest rate volatility up or down to your clients, then it doesn't matter. It's really a spreads product. But for those portfolio strategy that focus more on income, that in the horizon rates environments where we've increased our allocation to floating rate assets has created a lot of benefits to our portfolios that is absorbent the increase in interest rate now, interest rate has gone down 50 basis points already, and perhaps more to come in the US, we have to take a harder look in terms of our assets and liability mix from our overall aggregate floating rate exposure perspective. So one potential change could be that for those insurance companies that have found themselves over allocated to voting assets. Perhaps they should peel back some of the voting rates exposure and vice versa. For those insurance companies that had been more voting rates, liability exposure, perhaps they sent to benefits, given the fact that their liability costs had just now gone down 50 basis points in the US.

Q: Why is it important for you to attend ABS East?

I've been coming to this conference the last 20 years. I felt like every time that I come, I learned something new, I met someone new, and I pick up new ideas that I wasn't able to do, when I'm just sitting in my office in New York City. In addition to the people that I meet, the knowledge that I have acquired, I also felt like this is also a form that a lot of folks is able to exchange their ideas very firmly, I was actually just in a meeting with a bunch of investors talking about a newer asset class that is growing. This reminds me of what happened almost 20 years ago when we first started talking about some of the newer asset classes, like, for example, CRT, credit risk transfer is a new asset cost that started in 2013 and if we run back like subprime model, so sorry, ABS, a lot of the new asset class ideas seem to form and when people are exchanging ideas here. So I enjoyed the dynamic. I enjoyed meeting with different insurers. I also enjoy meeting my colleagues and my peers in the industry.

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