An analysis of the recent market volatility on Variable Annuity hedging programs
Document ID: 2008-1232
Published on: 1st November 2008
Author: Craig Turnbull
Recent months have clearly represented a challenging period for the global economy in general and the financial services sector in particular. The insurance sector has not been immune from such malaise. In particular, the volatile financial market environment has exposed the limitations of some companies’ strategies for managing the market risk exposures created by the provision of significant long-term guarantees in VA products. We expect this will result in the sector incurring hedging losses of the order of many billions of dollars in Q4 2008, representing several years of the expected profit stream from these VA product lines.
