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00:00I'm just wondering, right, it seems like it's this new normal where every day we're woken up to whiplash, volatility
00:05in virtually every single asset class.
00:07Does it change at all, your investment strategy and your allocation?
00:11Yeah, well, first of all, thank you for having me back. You're right.
00:14Every day we see volatility, we see turbulence, we see risk, and we're seeing it through both sides of our
00:21business, both sides of the balance sheet.
00:22So on the asset side, as a large institutional investor, we're holding $120 billion of investment assets on behalf of
00:30our policyholders.
00:32Valuations are stretched. Equities are at record highs. Credit spreads are at record lows.
00:37There's geopolitical and public sector policy uncertainty every day, potential structural reflation.
00:42You've got sectors being targeted by the AI revolution.
00:45So on the asset side for investors, there's no free lunch, and there's a lot of emphasis now for us
00:51on diversification, portfolio resilience, and on the liabilities for us as an insurer.
00:56I mean, fundamentally, our clients are looking now to de-risk, and that's a big tailwind for us because we
01:02ultimately offer safe haven solutions.
01:04And what's particularly noticeable right now is you've got market volatility, geopolitical uncertainty, marrying with these long-term demographic structural
01:14tailwinds, and we're seeing an explosion in demand for estate planning, for geographical legacy planning, wealth transfer solutions, where we're
01:23a global leader.
01:24So long story short, I mean, there's a lot of risk.
01:27We're in the risk business, and risk is a double-edged sword for us.
01:30On the asset side, what have been the biggest adjustments you guys have made over the last few weeks?
01:36Yeah, first of all, I mean, we're a liability-driven investor, and our liabilities are very long-term.
01:43Our average liability is over 20 years and very, very illiquid.
01:46So typically, we don't overreact to short-term fluctuations like we're seeing in markets this year.
01:52But on the other hand, we've got a lot of new money coming in.
01:54Demand for our solutions is very high.
01:56Our annualized premium last year was $6.5 billion.
01:59It was up 30% year-on-year.
02:01And we need to deploy that capital.
02:03And when we see sort of market dislocations like we see now, when we see liquidity events for other investors,
02:09that presents opportunities for investors like us who can invest through the cycle.
02:14So, I mean, a couple of things.
02:15One, I mean, obviously, we've seen a re-rating on fixed income.
02:18That higher yield is positive for us.
02:21It increases our new money yield we're able to offer to clients.
02:23On equities, we're slightly overweight.
02:25On Asia versus U.S., we see stronger sort of growth earnings potential.
02:29And we see more attractive relative valuations.
02:32And in private markets, we continue to allocate to private markets to optimize for portfolio diversification, vintage diversification, particularly in
02:42private equity and particularly as a result of liquidity challenges elsewhere in things like secondaries and co-investments where we
02:48see quite attractive opportunities.
02:50You mentioned the private markets.
02:51How much exposure do you have in private credit at the moment?
02:54And how much of that is in the software space?
02:56Private credit, relatively low exposure for us in terms of our strategic asset allocation.
03:01And what I'd say on private credit is for us, again, it's around having a resilient and diversified approach to
03:09that asset class.
03:10So our portfolio of private credit is extremely well diversified, over 1,600 loans.
03:15We play in the senior secured low LTV space.
03:18And we're a long-term illiquid mandates as well.
03:21So, you know, we're structurally, I think, very resilient against any kind of liquidity events that may be happening in
03:28other parts of that.
03:28What's the percentage of your total investment?
03:30Less than 5%.
03:31Okay.
03:31Okay, that's private credit specifically.
03:34You know, I guess it's good to hear from someone like you that is used to not just investing through
03:41cycles.
03:41I mean, you're very long-term.
03:42I mean, people tend to forget private credit did come at a liquidity premium because you have to sit on
03:47this for a long time.
03:49What do you think the message, do you think there was a, what message do you think was missed between
03:54this retail crowd that's gotten into it?
03:57And they're concerned right now that they can't get access or full access to their money.
04:02How do we need to be coming out of this in terms of the messaging from both the sellers of
04:05private credit and, of course, the would-be buyers?
04:07It's a good question.
04:08I'm not sure I'm best placed to answer it as a long-term insurer, as a long-term asset owner.
04:14But, again, I mean, I think you said it, David, perfectly.
04:16You know, there is an illiquidity premium that comes with the illiquidity cost of some of these asset classes, and
04:21particularly with private markets.
04:23And for investors like us with illiquid liabilities, they provide pretty good matching capability.
04:30For investors who are looking for more liquid solutions, there are, frankly, alternative opportunities out there with you, Michael.
04:37You mentioned about the amount of wealth transfer and the potentials that you're seeing in this region into the life
04:44insurance sort of channels, right?
04:45I think $5.8 trillion is the amount that you guys put on generational wealth transfer by 2030.
04:51How much can life insurance tap into that sort of opportunity?
04:54Yeah, I mean, a lot, I think.
04:56I mean, what's fascinating is I think we are absolutely living in the age now of the great wealth transfer.
05:01I think it started in the West several years ago as the baby boomers looked to transfer to Gen X.
05:06And now that tidal wave is right bang in Asia and being amplified by some of the cultural dynamics I
05:13think we see in Asia in relation to legacy planning and the desire to leave for children and grandchildren.
05:18So, I mean, we just a couple of things.
05:20I mean, shameless plugs.
05:21We've just been recognized by Euromoney as the world's leading insurer for wealth management.
05:27We've grown our new business profits by 35% to $3.4 billion last year.
05:33And a lot of that is being driven by high net worth demand for wealth transfer.
05:37Yesterday, we released our flagship research on legacy planning.
05:40To your point, we identify $5.8 trillion of wealth that will be transferred to the next generation in the
05:47next five years.
05:48According to our research now, for the first time, insurance has surpassed wills as the preferred mechanism for managing legacies
05:56and for managing estate planning.
05:58So, the long answer is I would expect quite a lot.
06:01And the second point that our research shows is that the key trigger for legacy planning is macroeconomic and market
06:08volatility.
06:09Now, our research was undertaken with 9,000 high net worths at Q4 last year.
06:13So, before recent events in the Middle East have happened.
06:16So, again, we are in the risk business.
06:19These are risk triggers.
06:20These are going to catalyze into increased demand for legacy solutions.
06:24Are preferences for solutions, do they vary as you go down the age scale?
06:29In other words, on the younger demographic of high net worth, do they have a different preference in terms of
06:34how they look at succession planning and passing their wealth?
06:37Or is it because people are just getting older, then they have to go life insurance over wealth?
06:41Well, I mean, the answer is the same as with our conversation on investment markets.
06:45There's no silver bullet here.
06:46I mean, a genuinely sort of diversified legacy plan will be a combination of different instruments, including life insurance.
06:53We do see more appetite amongst the younger generation for life insurance because they are looking for capital appreciation, you
07:01know, as well as the capital preservation.
07:03And life insurance is quite an effective way to do that.
07:05But even at the upper end of the high net worth scale, we see, particularly in Asia, a lot of
07:09our target clients are very exposed to concentration risk and illiquidity risk because their wealth is wrapped up in business,
07:17in single stock or in property.
07:19Yeah.
07:19And these are real liquid assets.
07:21And as we said at the beginning, you know, the challenge with the crises that we're facing in markets today
07:25are ultimately ones of you need diversification and you need liquidity.
07:29So, again, insurance is a solution that's solving for those needs for clients that have, you know, a lot of
07:35downside risk to manage.
07:37You issued about 450 legacy policies last year.
07:41How much of that?
07:42Was it a majority from Hong Kong, China?
07:44Yeah, I mean, can you break it down for us a bit more?
07:45Yeah, so 450 legacy policies we issued last year of $10 million or above, which is how we define our
07:52high net worth.
07:54And that went up to kind of $400 million in terms of scale.
07:58Now, to your answer, we have a Hong Kong, China sort of nexus, obviously, as Hong Kong Shanghai Banking Corporation,
08:03as the leading insurer in Hong Kong.
08:06Roughly two-thirds of our high net worth portfolio is coming from greater China.
08:10But we are serving high net worth clients from 24 different markets across the world.
08:16I won't name them out each, but they are literally global.
08:19And I think this, again, comes out in our research that we are seeing the internationalization of estate planning.
08:25And we are seeing this onshore to offshore flow of legacy wealth.
08:30And Hong Kong, Singapore, UAE, you know, these are the international financial capitals that I think stand the most to
08:36gain from these structural trends.
08:37And just in terms of, it could be different, the fastest growing from the biggest markets, which is greater China,
08:42to your point.
08:43We're seeing newly minted millionaires, billionaires.
08:45Taiwan, yeah.
08:46Taiwan, Korea, this market rally.
08:48Are those, how are you looking at those growth markets?
08:50We're looking, I mean, again, it's an onshore to offshore wealth flow that we're focused on.
08:55In terms of volume, of course, you know, greater China being, you know, Hong Kong being the doorstep to China
09:00is going to be the largest flow of that.
09:02But we are attracting flows from all across Asia.
09:05Taiwan actually is one of our largest residency markets.
09:08Oh.
09:09Korea, we're serving clients from Indonesia, from Malaysia, from Brunei, from all over the region.
09:15And I think if you look at the Hong Kong market in particular, with the deep balance sheets that we
09:21have here, with the level of advisory capability we have across banks, brokers, agencies, then I think Hong Kong has
09:27a lot to gain in capturing that flow.
09:29You mentioned UAE as a hub, a potential hub.
09:31I mean, does the Iran situation in any way change your strategy in the Middle East?
09:35No, I mean, as a group, we're fully committed to the Middle East.
09:38I mean, it is an emerging wealth hub, both onshore and onshore to offshore.
09:43And I don't see that changing.
09:45And I think, you know, wealth markets, you know, Hong Kong being another one, have demonstrated significant resilience over multiple,
09:53you know, domestic and international political events over the past five to ten years.
09:58And we would fully expect UAE to bounce back through this as well.
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