Strategic Asset Allocation for ABC Insurance Company

ABC Insurance Company is a large institution that has experienced significant changes due to evolving regulatory environments, market volatility, and changing client demographics. As an investment director, you are tasked with developing a strategic asset allocation plan for the company’s general account portfolio, which primarily funds guaranteed products (e.g., life insurance, annuities) and protects against risks associated with policyholder liabilities.

Considering the nature of the insurance company’s liabilities, recent developments in credit and equity markets, and the need for liquidity, construct a strategic asset allocation that balances risk and returns appropriately. Address how you would incorporate SAA (Strategic Asset Allocation), TAA (Tactical Asset Allocation), and any specific sector allocations or derivative strategies you deem necessary to enhance returns while managing risks. Alongside your allocation strategy, articulate how this plan specifically addresses the company's liability structure and regulatory requirements.

Additionally, analyze potential risks in your proposed allocation strategy, including the impact of interest rate fluctuations, credit spreads, and equity market downturns. Provide recommendations on how the company could mitigate these risks through hedging or other financial instruments.