Milliman Reports Hedging Programs 94% Effective as Industry Retrenches

SEATTLE, July 28 /PRNewswire/ -- Milliman, Inc., one of the premier global consulting and actuarial firms, today released results of an updated study measuring the effectiveness of hedging variable annuity guarantees. Between November and March, hedging programs maintained a high level of effectiveness -- 94% compared to 93% in the prior period. Given the favorable experience of hedging programs, many life insurers have expanded their hedging programs to increase the security of their capital base.

"The success of hedging programs has caused companies to look more closely at their unhedged risk and to determine how to use hedging to better manage those risks," says Ken Mungan, who heads Milliman's financial risk management practice. "Many companies have explored and implemented refinement and expansion to their financial risk management programs based on the success of the hedges in place and also based on companies' experience in the last year with their unhedged business."

Responding to market dynamics, variable annuity providers have also disengaged from the product "arms race" that predominated until the last quarter of 2008. The focus has shifted from product design to fees and benefit richness.

"Our research indicates that, of the 33 companies modifying their VA product offerings through May 16, 2009, 29 have planned a fee increase and 19 have planned to scale back product designs," said study author Peter Sun. "After a period of intensely focusing on product design in the interest of winning new business, 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."

For more information, read the study at http://www.milliman.com/expertise/life-financial/publications/rr/index.php.

About Milliman

Milliman is among the world's largest independent actuarial and consulting firms. Founded in Seattle in 1947 as Milliman & Robertson, the company currently has 49 offices in key locations worldwide. Milliman employs more than 2100 people, with a professional staff of more than 1100 qualified consultants and actuaries, including specialists ranging from clinicians to economists. The firm has consulting practices in healthcare, employee benefits, property and casualty insurance, life insurance, and financial services. Milliman serves the full spectrum of business, financial, government, union, education, and nonprofit organizations. For further information, visit www.milliman.com.

SOURCE Milliman, Inc.