Some Hard Data on the Effectiveness of Hedging


In my last post I posed the question “Does Hedging really Work”. Since that time I’ve been doing some research for an article in Windows in Financial Services and received the following quote From 

 


Ken Mungan,
FSA, MAAA, and Principal at the Milliman Financial Risk Management practice:

 Research at Milliman has
shown that life insurers hedging programs were 93% effective during the financial
crisis. These hedging programs were implemented to offset risk exposures
created by guaranteed minimum payments on variable annuities, a popular
retirement savings vehicle.  Hedge assets, owned by life insurers, are
estimated to have generated approximately $40 billion of cash due to market
declines.  This capital strengthens life insurers at a critical time of
financial turbulence.  Life insurer hedging programs rely on large scale
technology platforms and are extremely computationally intensive.

 

 

Ken is in a much better place to make this observation, based on the roster of clients that count on Milliman to provide Consulting services.

 

 

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