Liquidity Matters: A Panel of Experts' Discussion

Stewart: Welcome to another edition of the InsuranceAUM.com podcast. My name's Stewart Foley and I'll be your host.

Warren Buffet famously said, "You can't tell who's swimming naked until the tide goes out." My interpretation of that comment was he was referring to liquidity. Liquidity has become a major topic in this week's news. We've had the failure of Silicon Valley Bank, we've had Credit Suisse in significant distress, First Republic, and many others. And we have a very, very stacked panel today to talk about liquidity and how it impacts insurance companies. We're joined by four guests, and we're going to try to keep everybody involved and engaged here, and see if you can tell who's who.

We are joined by first Mike Ashton. Mike is the founder and CEO of Enduring Investments and also known as the Inflation Guy. Mike, welcome.

Mike: Thanks for having me.

Stewart: We are thrilled to have you. We're joined by Bill Poutsiaka, who has a very long and deep background in both insurance and asset management. He was the CIO of AIG's P&C business, the CEO of PanAgora Asset Management, and also the CEO of the predecessor to FM Global. Bill, welcome. Thanks for being on.

Bill: Glad to be here, Stew.

Stewart: We are joined by Geoff Cornell, the former CIO of Corebridge. Geoff's background is very well known, very highly regarded insurance investor, investor, a capital markets expert across the board. Geoff, thanks for being on.

Geoff: Thank you, Stew.

Stewart: And last but certainly not least, the regulatory savant, Amnon Levy, who is the CEO and founder of Bridgeway Analytics, a RegTech firm that specializes in insurance regulation and compliance issues. Amnon, thanks for being on.

Amnon: Thank you, Stew. Always a pleasure.

Stewart: So let's start it off with liquidity and how it impacts insurance companies. And just to put some specificity around it, what's the significance or relevance of the SVB and other liquidity stresses to insurers?

I don't know. Geoff, you want to start us off?

Geoff: Sure, Stew. I think there are basically three issues with Silicon Valley Bank that I think is very widely known, but I'll just mention them because I think it folds nicely into how we should think about this, with regard to insurance company balance sheets.

The Silicon Valley Bank had very concentrated deposits in a certain industry, everyone knows that. They had a very low percentage of insured deposits, which increased the desire for uninsured depositors to flee, potentially. They had poor management of basic ALM principles. They're invested in longer bonds that also had extension risk on them. As a result, they are in the situation that they're in right now. We had a pretty good discussion the other day. I don't think a lot of these things apply directly to insurance companies. I don't want to suggest that there are runs on insurance companies, because as Amnon said the other day, the policies are set up in such a way that highly discourages people from pulling money out. I agree with that a hundred percent, but I do think there's four things that really matter.

When a crisis like this happened, it's a good idea to revisit those principles and others I'm sure. The first one I'd say is all of these liquidity needs are assumption-driven. So what I mean by that is, how much and when do you receive reinsurance recoverables? Policyholder behavior; what will policyholders do in different environments? Morbidity, mortality, certainly catastrophes, and payout patterns - these are all the assumptions you build into a liquidity framework. One of the main assumptions, that Silicon Valley Bank had is their loyal customers are not going to flee. They were wrong on that. So again, in a different environment, you might want to reconsider those assumptions and how you think about them.

The other thing I'd say is insurance companies love options, they love to sell options. Whether it's selling options on the asset side, like an investment that could extend an agency mortgage-backed security. When rates go higher or can contract and prepay when rates go lower, or a policy that gives the policyholder the ability to surrender a policy and get back more money than actually the underlying bonds are worth. So those are options. You need to charge for those options and you need to think about how you're going to deal with those options. As everyone knows in large movements and markets, options become more valuable and the person that sold them is usually affected by the negative convexity.

The other thing I'd say is diversification of funding really matters. So as we talked about the concentrated base of Silicon Valley Bank, the type of depositor, for insurance companies, it's what policies do you have outstanding? How diverse are those policies? How do they move in different ways? In different interest rate environments? So that diversification matters to liquidity.

The last one is asset impairments, which we may or may not be seeing going into more of a credit deterioration. They matter as well because when capital disappears in an insurance company, you can't just ride it out and kick the can, as you can, if you're in a fund or something like that. You will either have to replace that capital or the regulator will force you to replace that capital. Generally speaking, the easiest way to do that in times of crisis is to sell risky assets, and that's probably the worst time to sell them. So you need to think about all those things when you're thinking about liquidity insurance companies and it all has to be wrapped together with governance. How often do you revisit the policy? How often do you change the assumptions? How do you think about these things? So that's the way, I think about it related to insurance companies and I'm sure others on the panel, will have ideas as well or might want to challenge someone.

Stewart: Why don't you take it Bill?

Bill: Yeah, great setup for the podcast, Geoff. Really good framework on the main issues. I just want to follow by connecting two of your points together. One is the options to policyholders and their behavior. I think that those policyholders, effectively, the equivalent of the bank's depositors, are going to be exercising the options that they have and are given to them by issuers, in a much sharper, more informed way than was the case, historically. Certain options were provided with the expectation that policyholders wouldn't always exercise them in an economically efficient manner.

Now I believe with the growth of high net worth and associated advisors having desktop models, I think they're going to be exercising these options with much more effectiveness. That's an additional cash flow risk that didn't exist maybe 10 years ago. My favorite example, we discussed it the other day, has to do with Canada where a hedge fund manager discovered that certain policies were offering a very high fixed rate, without limit as to volume and were also transferable through sale. So, what they did was they cornered a very, large holding and were ready to exercise in your words, Geoff, like a multi-billion dollar, in the money, liquidity put to these insurance companies. I don't think the average policyholder today is quite there yet, but I think they're getting much smarter about how to exercise their options.

Stewart: It's a great point, Bill. The knowledge and the understanding of those options I think is changing, right? So Mike, when we look at the macro trends, what's changed on the availability of liquidity? Your world is more on the inflation side, but you're also a Fed watcher. What do you want to talk about here with regard to liquidity in the markets, in general?

Mike: I think this also goes back to being short convexity. Market makers as a whole are short convexity when they make markets. They're trying to make a small amount of spread and then occasionally the bulldozer hits them. Because of some of the regulatory changes that happened after the Global Financial Crisis, banks are no longer effectively the main market makers in the sense of providing that backstop. A lot more of the apparent daily liquidity and the really, really tight spreads and all those things, they're sort of a mile wide and an inch deep. You have a lot of hedge funds and quick twitch traders, who are trying to take those nickels, but won't be standing there when the bulldozer hits them. So as soon as there's a sign that the bulldozer is coming through, everybody runs away. And the old days were not that old.

There were market makers on the floor of the stock exchange, specialists who were supposed to stand there and take the other side. Banks were supposed to intermediate large flows, and because now that requires them to essentially take a speculative position, which is frowned upon, there just isn't as much liquidity. In quiet times, there's plenty of liquidity. When that quiet leaves, so does the liquidity just as quickly. Unfortunately, there's no great way to evaluate what the cost of that sporadic liquidity or the fact that it is sporadic. It's hard to evaluate what the cost of that is. You can look at what typical transaction costs are to get into it, out of positions. That doesn't tell you the length of the tail of what it'll cost to get into and out of positions, at times it will not be possible to get out of positions.

All of the things have been getting gradually worse over the years that I've been in the business, but they seem to be especially bad now. Not just for the professional markets that insurance companies are dealing indirectly, but also 40 ACT stuff like the ETF Ecosystem involves, concerns, lead market makers who may or may not be there when things get bad. We saw some of that a couple years ago with credit ETFs. So, it's difficult to figure out what the cost of that illiquidity is, but that's certainly a change
in the environment that we have to face today.

Stewart: I want to talk about the pricing of liquidity in just a minute, but first, Mike, when you were talking about changes in the regulatory environment, which takes me to Amon. What can you tell us, Amnon, about some changes that have taken place recently that may have had an impact on our current situation?

Amnon: Great questions too. And it really ties together Geoff, Bill and Michael's commentary. The landscape has evolved incredibly over the last decade, in part in response to the regulatory changes, in part because players have become smarter, as Bill pointed out. And to their credit, the NAIC has evolved how they've structured the rules. Insurers historically have had to go through, in particular life insurers, a wide range of different stress tests to ensure that they are cash flow matching. More recently they've rolled out a number of efforts to roll out liquidity stress tests that look at how surrenders, which is when policyholders effectively redeem their life policies, that Geoff and Bill were talking about. How those evolve and how those evolve in a dynamic way with asset sales, potentially. Ensuring that under a stressful environment, those liquidity events are handled appropriately and are able to be absorbed effectively through the insurer's balance sheets.

Those sorts of analyses are incredibly complicated and these liquidity stress tests are still at their formative stages. I have to give the NAIC credit for really trying to push this forward. We could see from what's transpiring with Silicon Valley Bank and other financial institutions that it's really hard to know how things play out. It's never just one thing. Bill, you've brought up a number of times the critical role that stress tests play in ensuring an institution's solvency and Geoff, you've brought up governance issues. These issues are critical. We also have to acknowledge it's never just one thing and it's never the same thing twice.

Often people wind up looking at the last crisis, but that's not what's going to happen next time. And it's the same if you've seen one pandemic, you've seen one pandemic, the next one's going to look totally different. This is something that, as a community, we're going to see efforts to ensure that the system is stable. The insurance industry is pretty unique in that its self-insured, so there's an incentive for players to collaborate and ensure that they are approaching the problem in a prudent manner. It's a learning process, when you have events like what we're going through right now, it's the right time to take stock of where we are from a governance perspective, from a risk perspective. It's important to take stock of where we are in terms of a grounded assessment of risk.

Stewart: Did you say on one of our prep calls, that there was a change in the stress testing requirements or the frequency of stress testing requirements on this size of bank? Am I making that up or is that real?

Amnon: No. There were a number of changes that occurred leading up to the financial crisis and then post-Financial Crisis with Dodd-Frank. That led to analysis that banks over $50 billion and then the next threshold was $100 billion had to adhere to. Over time those requirements were ratcheted down. In 2018-2019, the thresholds effectively became a $100 billion and $250 billion. That allowed Silicon Valley Bank to not be required to submit their analysis of their stress balance sheet, in the way that they otherwise would have post-Financial Crisis.

Stewart: Well one of the things that's great about this panel, is that nobody's got a huge compliance department to go through, including me, right. I just paid all my insurance premiums. So here we go. You're running a $200 billion bank and it seems to me that, when you have a mark to market mismatch, that's 10% of your capital, the fire alarm goes off and the sprinkler system goes off and everybody ought to frigging know it, right? I mean several of you guys have run sizable portfolios. What are we missing here? Where am I missing this?

Bill: Stew, let me respond to that. I'd like to give kind of four quick examples, listening to my colleagues here, specific examples of the concept that they've mentioned. Not with regards to, I think you're referring to mismatch. The insurance industry has always been beholden to that in a very rigorous way. I remember years ago, I went to my first CIO conference and I casually mentioned to others there that I was a little bit long my liability duration and the reaction was is that I was like a felon. You're mismatched? It was by a minuscule amount. So I think that some of the examples to these areas that I would reference would be as follows.

Coming back to the governance issue that Geoff mentioned, this is kind of a big picture. This group here loves to get into the technical parts of it and this is more of an organizational issue. As far as I know, there is no requirement that a financial intermediary have on the board, someone with actual financial intermediary operating experience. Can you imagine the SVB board if somebody was on it with that experience and not saying, "Hey, wait a minute!"

Stewart: Absolutely.

Bill: At the same time, I'm not sure that every one of the companies in the insurance industry practices that common sense governance. It's an example of what I think is being aware of the regulations but not relying on them, exclusively. On the regulations, to Amnon’s point, it's important not to get ahead of them. Our industry gets ahead of them and doesn't stay current with the uncertainty that exists.

So with regards to liquidity, there was an example years ago, Geoff, you probably remember this, where a certain kind of preferred stock was engineered that had capital efficiency purely for the insurance industry. All of a sudden the regulator, I think it was the SVO, decided to change the treatment of that preferred stock which many companies had bought. Everybody wanted to exit and they had a difficult time doing so because the buyer had disappeared, so to speak. It's important from a liquidity standpoint, to understand the current state and initiatives for regulations.

On the ALM side, there's a risk that's being taken now that has been well expressed in various organizations and that is attaching private equity distributions exits to long-dated liabilities. I understand the theory of this, it allows a more aggressive return assumption, but there are rebalancing risks and therefore liquidity risks over different periods as these long-dated liabilities mature. There can be some unsyncing of the assumptions in the models that were made initially, that creates an additional liquidity risk. This also needs to be modeled in terms of the risk.

Lastly, this is my personal view, I don't think that the distinctions in liquidity, between various illiquid strategies or complex alternatives, have gotten the attention that they deserve. There's different exit and entry features, they have different trading patterns and cycles in the primary and secondary markets. We tend to just lump them together as illiquid. So I think there's a real opportunity for us on a steady state basis, not a stress test, to really recognize the differences in liquidity between illiquid instruments. From an evaluation standpoint, I would actually try and experiment. I would create a liquidity analyst who would understand these in great detail, who would price them, maybe come up with liquidity ratings, just as we've done for decades on the credit side. So I think there's some real examples that are exclusive to the insurance industry, that may not have been transferable from recent banking problems, but are extremely important for the reasons that everybody else has mentioned.

Stewart: You mentioned assumptions. Geoff, I know that in some of the things that you've been sent around, you made one of your points was assumptions matter. Can you talk a little bit about what you mean when you say that?

Geoff: I think you asked what's the danger of missing something in here just before, which I think is tied into the assumptions. I think the danger is that markets like this, you get lulled into complacency about liquidity.

To Michael's point, liquidity is going to be just as good as it was for the past 10 years. Credit will respond the way it's responded, but there’s different buyer bases now. Think of how private credits changed over the past 10 years, about who the holders of private credit are. Can they be as resilient and hold on and work things out? Do they have workout teams? Some places don't have workout teams. In the event of a full-blown crisis, I think stress tests are great, but one of the pitfalls you fall into is you look at historical data and you say, okay, so it's going to be what it was before. I'll look at the worst-case scenario, 1 in 200, 1 in a 100, whatever your confidence interval is, you get lulled into complacency.

The other main issue that I think we've seen before is as a management team, if you don't charge for risks that aren't charged for by regulatory models, you could be really missing a lot, right? I don't know what the framework is on a bank and I'm not going to pretend to know it, but if you're not charged for having negative convexity in your asset pool, that could extend and turn into a negative into a loss.

You're going to do that trade over and over and over again. I know because I had a big team working for me where if you left major risks uncharged, they will take that risk a thousand times, like Yen Carry trade. Am I charged for my FX position? Am I charged for the risk that something like that creates? So I think it's twofold. How good are the stress tests? We always had an economic capital model at AIG and Corebrdige, where we would really think what the true risk of the underlying securities are and then compare it to what regulatory risks are. They're always different, sometimes we'd be more strict and sometimes we'd be less strict. I think the point is in moves like this, you really need to revisit all your policies, think about how things could get worse than they are today.

I think credit, the obvious one to me is it's just a different buyer base than the last time we had a credit crisis. We hadn't had one a long time. How does that buyer base react when they have to pump in more capital or free up capital? We don't know. I don't know, I haven't done that analysis yet either, on how much capital-intensive insurance companies and things like that whole private debt versus the past five years. So those are the types of things I think you really need to question and think about. They're not easy because the data just doesn't really exist, in the form that I'm talking about.

Stewart: It's interesting, I used to try to tell my students, liquidity is the amount of price degradation that you experience when you need to go sell something now, right? I mean for the group, how should we be thinking about the price of liquidity? This happened in 2022, where public bonds... and you tell me, you guys are closer to it than I am, but this is what I saw from 50,000 feet is that public bonds underperformed private credit. Okay, so is that just a difference in the way that they're marked?

Because I got to think that if you go out and you're going to try and get bids on that, maybe the bids and the marks don't match up. Where do I get the real number of what my portfolio is actually worth? And it's hard because when crises hit, the liquidity is typically decreased, right? How do we go about thinking about that?

Bill: One of the things that I've been talking to others about is, as we diminish as an industry, the size of the public tradable portfolios that as Geoff, mentioned are the source of liquidity in a crisis and yet, connect that dot to what Mike described as thinner markets. I'm pretty confident that they're going to be available to sell and have liquidity. I think the haircut that you take because the door when everybody's trying to get out is smaller, is going to be much greater. To me the evidence of that is what happened in the UK pension market with CLOs, they proved that these high-quality instruments were liquid and so everybody was looking to them as their liquidity source at the same time.

The capital implications have been magnified by the conditions that Mike described in the narrower doors, I call it at a moment of truth. To me, what this suggests from a corporate management standpoint, is you've got to look harder at lines of credit like the Federal Home Loan Bank Board as an option for liquidity in a stress test even more than you did in the past because of these conditions in the capital markets that I've described.

Geoff: I'd say one of the most glaring examples of what you're talking about is non-agency RMBS right after the financial crisis. So, you had a bunch of companies that couldn't own it anymore, primarily insurance companies, right? They dumped it and there was really never a buyer. The question is what are the cash flows of those underlying securities, intrinsically worth. Then assign a discount rate to it because the bid is very, very far away from that, which is what the NAIC did. Which was, say, “If I can prove that the intrinsic value is 70 and you're buying them at 60, then I'll give it an NAIC 1,” for an example. That improved liquidity in that market.

I think it's a question of the difference between the intrinsic value, which in Level 2 and Level 3 securities, you can actually argue that the intrinsic value is what you should be marketing on in your balance sheet. Then there's a gray area around that and how close the controls are in your auditors and everything like that. I think that's probably the most blaring example in size I've seen.

Amnon: If I could jump in, I always find it incredibly fascinating to hear investment professionals explore this issue. Personally, I come at this from a risk and regulatory perspective. There are a couple of aspects to this that I think are really worth unpacking and bridging. Not only with how the rules are set up, but capital markets and implications for them.

Bill, you were describing how different alternatives are different yet they're somehow lumped together. From a regulatory standpoint, from a risk standpoint, the problem is level setting the articulation of risk across different asset classes, and alternatives, by the very fact that you're calling them alternatives, aren't homogenous. You don't have a large pool, that allows you to level-set the risk articulation in a robust statistical manner. Often folks look for in terms of assessing how things might play out. We've seen a tremendous amount of growth in the space of alternatives and regulators really struggle to think about how to manage that.

As to insurers, Geoff pointed out, how if you are not charging the organization for those risks, you wind up doing things that are not particularly prudent. Or, the investment professionals wind up doing things that are not particularly prudent. I often find it useful to look at different regulatory jurisdictions, to see how things play out. How they wind up managing those sorts of risks and the implications. In Europe, post-financial crisis, you saw a real clamp down on structured assets that were not fully... let me call it vanilla, and there were severe implications for securitizations. You’re seeing Europe really struggle with building out their securitization market, in comparison, say, to the US and that's not a surprise. It was effectively regulated. Much of that market was regulated out of existence and you're seeing them trying to figure out how to possibly refine the rules, to revive those markets.

That takes quite a while to reformulate and it's important to really think about, from a regulatory standpoint, how these types of assets are regulated, the implications for the entities that are being regulated and the sort of culture that it creates. When you set in a regulation, like a liquidity stress test or what have you, that creates a culture within the organization because that's a language that has to be spoken.

From a compliance perspective, hopefully, is building off of Bill's point. The risk function isn't limited simply to regulatory compliance. Then there's the interplay with the impact on capital markets where capital winds up flowing and a particular market winds up building out. You wind up having that interplay that is really impactful, we could see this in the United States in certain markets that built out. I thought it was really interesting point that Geoff made regarding the mortgage-backed security market post-financial crisis and how that played out and the regulations that were refined in order to address some of the shortcomings.

Stewart: We're at about 35 minutes and we got umpteen more questions to go. So let me toss some stuff out here. One is how do we value active management risk and reward in the context of public versus private liquidity? How should we be defining stress scenarios? Are there off-the-shelf models that can help? I'll just throw it open to the group. What do you think? What stands out to you?

Geoff: I don't know of off-the-shelf models that are usable. I think it's so... maybe Amnon has a view on this, but I think part of my comments around having to have an internal view on this is there's nothing, no size fits all. We were more strict, more onerous than the regulators on some securities and way less on others. I think it's just because if you talk to the NAIC or talked to any other regulator and say “How many securities do people want you to look at those risk parameters around those stress risk parameters?” There's probably a list that's pages long. They'll never get through them. I think there's flaws with all this stuff. I think there's many different models. I think you really have to have an internal view, but maybe others know of off-the-shelf stuff that is better than what we had.

Bill: Geoff. There's a lot of models out there, but I think that the transcending point that you make is very idiosyncratic to each company, whether you call it fingerprint or DNA. There are some larger issues that kind of drive groups together; like lines of business, form of ownership, jurisdiction, things like that. But every company has its own profile, it's investment style. As Amnon said, it's culture and how they manage themselves. So I think that it is very customized and tailored. There may be some far out there that can accommodate those differences. What's important is that those differences are recognized in the form of the stress tests.

One comment, Stew, on how do we measure active performance, I do think that this is an area where there needs to be more data. I, specifically, mean by that is very often private markets and funds are compared to public market indices. I don't get that because private market funds have their own specialized form of active management, how those are sourced, which ones get in, where there's value. So they should be compared apples to apples, not only to a public benchmark, but public market active management. In some cases, where the distribution of returns is very wide. So to me there's a lot more to the active management passive, than what I just expressed for private markets but that's one of the elements that I think should be added to the data that is often excluded.

Geoff: Yeah, just adding one thing to that, Bill. I think that there's a view out there that says basically “I'll go into illiquid markets because generally, I'm a holder of securities. I don't mean lazy and I don't mean the credit never changes. What I mean is, I bought a security in 30 years at a 3.50% and now it's worth a 6% because of accounting rules and assets that are on my balance sheet that might be affected if I sell this at a loss, all these things come into play. When your hands are tied a little bit on what you can actually do in the portfolio under asset, under active management. I think that there's a view that, because I can't always take advantage of that and I know that you have to be really good to beat benchmarks. I'm just going to take a more tried and true approach of accepting illiquidity.”

Now I'm not saying that's right, I'm just saying I think that's the view that people take. The obvious example is a bond that you had to buy at a ridiculously low yield that now you can't even sell now. So you didn't get anything for that. You're going to hold it to maturity or something. You would've been better off if you were in a private market. All things being equal and markets don't blow up, which is the caveat of the year.

Stewart: Absolutely. So as we kind of get to the end of things here, I'll just go around the table. What would you like to add as kind of a way to close out here? Mike, I'll start over with you.

Mike: Well, I guess my only observation, being an insurance industry guy, is that there are some pretty clear differences with the way that the problem in the banking industry evolved, compared to the exposures that insurance companies have. One of the key differences is that banks are forced in aggregate to have certain risks and not by regulatory reasons. When trillions of dollars have dropped into people's bank accounts with money that's printed by the Fed, then in aggregate the banking system has to have X amount of deposits just mathematically that they all have, it has to sum.

Moreover, that means that on the other side of things, on the asset side, they can either make ridiculous amounts of loans, so they could hold ridiculous amounts of securities. The banking system as a whole, it was forced into a position of having lots and lots of deposit liabilities and lots of securities holdings. That means that the banks that are well managed and know how to manage that duration gap will rise to the top and the ones that didn't will fall underneath the waves. I don't think that that's quite the same. We don't have the same sort of thing in the insurance industry, whereas there may be regulatory imperatives that force insurance companies to respond to risks in the same way or into certain securities in the same way. They aren't enforced in aggregate to have a certain amount of policies outstanding, things like that or price in a certain way.

Stewart: Does this event hamstring the Fed's ability to deal with inflation in your mind?

Mike: Yeah, well we've already seen that the balance sheet has re-expanded by a large amount. In my view, the Fed's number one job is to manage the stability of the banking system and all of the other tweaks that they do tend to do more harm than good. No question, that if this is a systemic problem, that it does hamstring the Fed. I'm not sure that it's necessarily a systemic problem or not. If it is, then no question the quantitative tightening is effectively done. That means that whatever the Fed was doing to restrain inflation is they're going to have to take a time out.

Stewart: Amnon, how about you? How would you like to close?

Amnon: Coming back to some of the early points, regarding how much the landscape has changed over the last 10 years. The insurance industry's balance sheet looks very different today, than it did 10, 20 years ago. Bill and others have brought up the ramp-up in holdings of private assets. I pointed to the ramp-up in surrenders, effectively, and we're in somewhat uncharted ground in terms of whether the insurance industry has a liquid balance of assets and liabilities. Until you hit a scenario where something plays out it's hard to know what that limit is.

Bringing it back to the banking side, what is the right threshold for which a bank should be more heavily regulated? Seems that $250 billion is too high, should you bring it back down to $100 billion? Should you bring it back down to $50 billion? At what point do you want to make sure that the insurance industry is forced to have a certain proportion of liquid assets? I'm just not sure we know what that threshold is. What is the limit by which we should be concerned when we think about the proportion of "liquid" and "illiquid assets". Being sensitive to Bill's important point that liquidity means a lot of different things and each asset class should be really thought of as being unique. We don't want to necessarily lump them into just homogenous groups, but be sensitive to their nuance and unique characteristics.

Stewart: Thanks, Amnon. Geoff, you talked about liquidity, trying to figure out where the line is. How would you like to wrap us up?

Geoff: Look, I think I'm wrapping it up by just kind of reiterating what I said before. I would think that people should formally go back and revisit all the assumptions and say which are the ones that are most likely not going to matter anymore and really need to be rethought.

The other thing I'd say is just from a risk perspective, charge yourself for risks you're taking. I did read one thing on Silicon Valley Bank, don't know if it's true, so I'll caveat that hedges were taken off in anticipation of a lower rate environment, right? If that is true, then you should charge yourself for taking those hedges off. Now you've increased your interest rate risk, right? So maybe that didn't exist there, maybe it did, I don't know. But the way that you take your eye off the ball on risks, is by letting them be free and you really need to charge for them. You really need to think about in this new environment, what are the biggest risks going forward? I'll leave it at that.

Stewart: Thanks. And Bill, last but absolutely not least, would you send us on our way here?

Bill: Sure. I really benefited from the comments of everybody else on this podcast. My three takeaways would be this. First, governance, it needs to be informed in order to discharge that re responsibility, full stop. If you don't have people with the right expertise on a board, you're looking for trouble.
Number two on portfolio kind of construction and design. Several of the things that Geoff has emphasized: pricing, asset liability, convexity, charging for risks. All these things need to be reexamined and done so in the context that Mike described of the marketplace, which is more fragility in the liquidity of the markets for various reasons, a shorter half life of it, however you want to describe it. In examining these assumptions, it needs to be done in the context of a changing context of the capital markets.

The last takeaway for me is the regulatory side. That is not getting ahead of understanding, where the regulators are heading on this because while as I said, we don't want to rely on the regulators and we want to fashion our own. We're masters of our own destiny to some extent. We certainly want to be aware of their decisions because it affects flows and that affects liquidity. So those are my three takeaways, Stew.

Stewart: Thanks Bill. I want to thank everybody for being on. It was a great podcast and I certainly learned a lot. I want to thank you all for being on. Mike Ashton, CEO, and founder of Enduring Investments; the Inflation Guy, Mike thanks for being on.

Amon Levy, CEO and founder of Bridgeway Analytics, a RegTech firm, the regulatory savant, Amnon, thanks for being on.

Geoffrey Cornell, former CIO at AIG Corebridge. Geoff, our pleasure, it's always great to hear your views. You certainly have great capital markets, expertise and insights.

And Bill Poutsiaka, independent consultant, director extraordinaire, it was your idea to do this podcast. And I want to say thank you very much.

Geoff: Thanks, Stew.

Bill: Yeah, thank you, Stew.

Stewart: If you like the podcast, please review us on Apple Podcast, rate us, like us, and please tell your friends. It helps with our distribution and it's all we do, insurance asset management. So any help you can give us for distribution, we appreciate it. It's always a pleasure to talk about these issues with some real experts today. And thanks, guys, for volunteering your time. So thanks for listening. My name is Stewart Foley, I've been your host and this is the insuranceAUM.com podcast.

The InsuranceAUM.com podcast is available on