Living with volatility

Several insurers have continued to report multi-million-dollar losses attributed to hedging their variable annuity products. What went wrong and how are variable annuity risk management techniques changing? Jayne Jung reports

Market volatility has revealed gaping holes in the risk management of variable annuities with embedded guarantees. US life insurers have reported tens of millions of dollars-worth of losses on hedges over the past few months, causing some to rethink their risk management strategies. In response, investment banks are looking to fill in the gaps by offering a variety of tailored products to cover capital markets risk and, increasingly, longevity and behavioural risk.

Variable annuity guarantees