Connecting the Dots: A Holistic Approach for Insurers

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Gary Zhu, CFA
Deputy Chief Investment Officer—Insurance; Global Head—Insurance Portfolio Management

Transcript

There’s a lot of excitement in the insurance asset management space. A lot of innovation has taken place on the asset side of the equation, and more developments are happening on the credit side and equity side. We’ve been calling this the insurance renaissance.

We recently welcomed more than 50 insurance clients in New York City, where I had an opportunity to have a conversation with our credit analysts and equity strategists, as I was talking about different insurance companies that deploy different asset strategies. Our credit analysts and equity analysts also shared their opinions on how different asset strategies could have different implications into an insurance company’s credit spreads, and as well as equity valuations.

You might have heard of the Fed’s using dot plots to forecast short-term interest rates. We deploy a similar strategy at AllianceBernstein, as we are thinking about the asset strategy in assessing different asset classes by different asset categories of risks. So, for example, when we think about corporate risk, commercial real estate risk, residential real estate risk, and as well as consumer risk, we’re trying to focus on defaults, rating migrations, cash flow variability, liquidity, and as well as headline risk, in thinking about risk allocations for our insurance clients’ portfolio balance sheets.

Insurance companies are very familiar with rating migration and default risk. As the asset class becomes more complicated and innovative, where you have structured assets, securitized, and as well as private assets that have delayed draw functions, cash flow variability is becoming a bigger part of risks that insurance companies have to get comfortable with.

We spend a lot of time quantitatively and qualitatively assessing where we’ll put the dots on those different risks across the different asset classes that we looked at, not only at the highest asset class level, but getting into more details into the sub-asset class, given the fact that segmentation is becoming broader and broader in different asset classes that we evaluate.

And finally, we combine the fundamental analysis that we do and look at what historical relationship between two asset classes has been, and as well as the current spread pickup between two asset classes. Putting it all together is how we have been managing insurance assets holistically across publics and privates. At the end of the day, it’s all about connecting the dots.

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The views expressed herein do not constitute research, investment advice or trade recommendations, do not necessarily represent the views of all AB portfolio-management teams and are subject to change over time.

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AllianceBernstein

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At AB, insurance is in our DNA. We understand insurance investors’ biggest challenges because we’ve lived them from the inside out. For more than a half century we’ve managed insurance client assets. Our dedicated vertical, deep resources, distinctive investment capabilities and forward platform are designed with insurers’ needs in mind. With an uncommon approach, a collaborative culture and a commitment to innovation, we drive flexible solutions that unlock potential across balance sheets and the full market spectrum- from fixed income to private markets and equities. We’re built to be long-term partners in the evolution from traditional asset-liability management to the new reality of strategic portfolio construction. AllianceBernstein (AB) is a leading global investment-management firm serving institutional investors, individuals, and private-wealth clients in major world markets. Our diverse, connected, collaborative culture encourages different ways of thinking and differentiated insights. We embrace innovation to address increasingly complex investing challenges. And we pursue responsibility throughout our firm- from how we work and act to the distinctive solutions we design for clients.

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Nashville, TN, 37203
 

Robert Amberger
Client Advisor – North America
robert.amberger@alliancebernstein.com
+1 212-823-2890

Bob Sharma
Global Head of Insurance Client Group
bob.sharma@alliancebernstein.com
+44207-170-0688
 

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