Tariff Turmoil and Takeaways for Insurance Investors

23 April 2025

3 min read

Gary Zhu, CFA| Deputy Chief Investment Officer—Insurance

Deanna Leighton, CFA| Head of Allocation & Strategy—Insurance

Gerry Anderson| Insurance Solutions Specialist

We check in on what has been a rollercoaster ride for markets as tariff policies bite.

Tariff Wars Upend Markets and Further Cloud the Macro Picture

It would be an understatement to call April “eventful” for insurance investors after a flurry of US tariff measures, reciprocal tariffs and rhetoric. Markets wrestled with the implications for the global macro picture and outlook for asset classes, sectors and issuers. Aside from a furious equity rally on tariff pauses, markets have been challenging. Stocks are down, credit spreads are wider and volatility is up.

The back and forth on specific tariffs remains very fluid, but if the 10% universal tariffs stay in place, we expect tariffs to slow growth rather than boost it. Combined with cuts in domestic spending and government jobs, we now expect a more pronounced US slowdown than before. Europe will take a hit to growth, too, with potential recession risk. Policy uncertainty is a significant downside risk and could lead to a global recession. Central banks may be forced to act with unexpectedly rapid rate cuts.

Interest Rates Have Been Volatile in 2025

Bond markets have been restless, too. The 10-year US Treasury bond, for example, started April at 4.2%, dropped as low as 4.0% and rose as high as 4.5% before declining by mid-month. The unprecedented volatility has led some investors to question Treasuries’ status as a safe-haven asset. Government bonds in other markets saw notable fluctuations, but they were tame in comparison.

What should insurers make of the volatility in rate markets? Our most recent forecast calls for a continued global slowdown with a substantial chance of recession and central bank rate cuts, which will influence the shape of the yield curve. But the path of rates is still largely unknown, so we see little reason to depart from our view that insurance investors should stay close to home with their portfolio duration versus liabilities.

For insurers outside the US, volatile currency-exchange rates may start to affect those who invest in US-dollar assets against non-dollar liabilities. The cost of currency hedges will likely be less predictable and more volatile, which could make US-dollar assets less appealing and lead non-US insurers to start deploying more capital closer to home.

Assessing a Reshuffled Relative Value Landscape

With markets in turmoil, we’ve seen sizable shifts in relative-value opportunities. Investment-grade corporate bond spreads have widened from their early-year lows: they’re now near their levels of last summer, around their five-year averages. We think credit spreads will largely reflect uncertainty in the assessments of how long tariffs will hang over the global economy.

In the securitized space, a lack of clarity on the extent of the economic slowdown is flowing through to underlying assets in securitizations. This has driven spreads wider in segments including residential mortgage-backed securities, commercial mortgage-backed securities and collateralized loan obligations (CLOs)—including large outflows from AAA-rated CLO funds.

The View Across Public and Private Spheres

With a rapidly shifting geopolitical picture altering the market landscape, assessments of asset allocations and opportunities must be dynamic. Incrementally, public markets look more attractive versus private markets after the recent volatility, but plenty of private opportunities remain and are worth exploring.

We think it makes sense for insurance investors to view the opportunity set as public and private exposures—not public or private. Private assets generally offer incremental spreads versus public assets and the ability to incorporate bespoke protection. Public markets are critical in tapping liquidity and expressing changing beta views quickly.

But it’s prudent to assess private allocations as they continue to grow, ensuring that risk compensation, diversification, balance sheets and liquidity characteristics align with portfolio objectives. Assessing opportunities across diverse sectors requires multiple lenses, and technology should play a role, too, with tools and systems helping to identify and access the best liquidity available.

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.

About the Authors

Gary Zhu, CFA

Gary Zhu is a Senior Vice President and Deputy Chief Investment Officer of Insurance, where he is responsible for portfolio performance, strategic positioning and customized investment solutions for AB’s Insurance platform. Zhu joined AB in 2020 as the global head of Multi-Sector Insurance on the Fixed Income team, primarily focusing on developing and implementing multi-sector income portfolio strategies. In 2021, he was named director of Insurance Portfolio Management, where he led AB Fixed Income’s insurance business. Under Zhu’s leadership, the Multi-Sector Insurance team was named Investment Team of the Year in 2022 and 2023 by Insurance Asset Risk. He is also a portfolio manager on the US Investment Grade Credit and Sustainable Thematic Credit teams. Prior to AB, Zhu was a senior publishing research analyst and the head of cross-sector research at Wells Fargo Securities. He ranked first for cross-asset strategy in the 2019 Institutional Investor survey and earned the title of Best Cross-Asset Analyst in Global Fixed Income Strategy. Before joining Wells Fargo, Zhu was a senior securitized assets trader and portfolio manager at Genworth, where he managed ~$10 billion of fixed-income investments. Prior to his portfolio-management role, he helped manage Genworth’s $70 billion general account, with a focus on US and European banking exposures during the 2008 financial crisis, and held various roles across the company. Zhu serves on the board of VCU Investment Management Company and is a member of the Investments Committee. He is a senior advisor to the Structured Finance Association’s flagship Structured Finance Journal, a double-blind, peer-reviewed publication dedicated to advancing research within the structured fixed-income markets. Zhu holds a BS (summa cum laude) in finance and economics from Virginia Commonwealth University and an executive MBA (with Dean’s Honors) from Columbia Business School. He is a CFA charterholder and holds the Fellow, Life Management Institute designation.

Deanna Leighton, CFA

Deanna Leighton is a Senior Vice President and Head of Allocation & Strategy for AB’s Insurance team. She is responsible for formulating insurance portfolio allocation strategies, overseeing daily portfolio-management activities and leading insurance-specific cross-sector, relative-value discussions. Leighton interfaces with AB Insurance’s strategic clients in building tailored liability-driven and asset-focused solutions. She is a frequent speaker at industry conferences and moderated the inaugural Private Credit panel at ABS East in 2023. Prior to joining AB in 2022, Leighton was a fixed-income portfolio manager at AIG Asset Management, where she oversaw around US$5 billion of high-yield bond investments and helped build AIG’s third-party asset-management business. Before this role, she was an associate portfolio manager for AIG Asset Management’s high-yield bond portfolio. Leighton holds a BA with a concentration in economics from the University of Michigan and is a CFA charterholder. Location: New York

Gerry Anderson

Gerry Anderson is a Vice President and Insurance Solutions Specialist on AB’s EMEA and APAC Insurance Solutions team. He is responsible for supporting product development and the development of technical solutions to best meet the needs of AB’s insurance clients. Anderson is also a regular contributor to the firm’s market-insight and thought-leadership pieces. Prior to joining AB in 2024, he was an associate director at WTW, a senior consultant at Hymans Robertson and an actuarial analyst at M&G. Anderson holds a BSc (with honors) in mathematics from the University of St Andrews, Scotland. He is a qualified actuary and Fellow of the Institute of Actuaries (FIA) and has attained the Certified Enterprise Risk Actuary (CERA) designation. Location: London