The hedging programs used by insurance companies to support the guaranteed living benefit features in their variable annuity products have held-up well recently.
Milliman reports that insurance companies supported 94% of their guarantees for the six month period ending in March 2009.
The success of the hedging programs and the highly volatile capital market environment have encouraged many insurers to increase their hedging efforts.
As reported in an earlier post, the increase in hedging results in higher costs and less rich product features for consumers:
“After a period of intensely focusing on product design in the interest of winning new business,” Milliman said, “companies are instead looking at their pricing and benefit richness and returning to the original variable annuity value proposition, which holds that VAs offer a floor upon which people can build their retirement security.”
Source: Financial Planning
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