Some Hard Data on the Effectiveness of Hedging

daved18 — Fri, 06 Feb 2009 00:05:00 GMT

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.

The Windows HPC Team Blog : Hedging Milliman Risk Management

Some Hard Data on the Effectiveness of Hedging