Hedging Programs Withstand Market Downturn

Milliman study of equity-linked guarantee programs shows positive results for
those using hedging strategies

SEATTLE, May 20 /PRNewswire/ -- Milliman, Inc., one of the premier global
consulting and actuarial firms, today released results of a study measuring
the effectiveness of hedging products that contain investment guarantees such
as variable annuities. Hedging results from the 16 study respondents revealed
few unanticipated losses and validated the efficacy of financial risk
management programs, many of which have been implemented since the last
significant market downturn.
"The demand for investment guarantee products arose out of the last major
market downturn in late 2001," said Ken Mungan, who manages Milliman's
financial risk management practice. "Since then, companies have implemented
investment guarantees to protect them from market risk. This study shows that
these guarantees have fared well in their first big test. Robust hedging
programs are behaving as anticipated."
The stability and predictability of hedging programs should provide
comfort to insurers, especially in light of the recent market turbulence.
"More than half of respondents reported no unanticipated gain or loss
during the recent period of market volatility," said study co-author Peter
Sun. "Some reported an unanticipated gain, and most of those who did see
losses experienced unanticipated declines of less than 10 basis points. Eleven
of the surveyed companies had both foreign market and currency exchange
exposure, so these results are global in nature. With most programs holding up
well in the recent storm, it should come as no surprise that most of the
surveyed companies are sticking to their original hedging strategies.
Financial organizations continue to gain confidence in financial risk
management as a way to protect their enterprise."
The Milliman study documents the experience of the 16 respondent companies
and provides a hypothetical yet typical example of how a block of variable
annuities with guaranteed minimum withdrawal benefits behaved over the last
several months. The complete results are now available at www.milliman.com.
About Milliman
Milliman, whose corporate offices are in Seattle, serves the full spectrum
of business, financial, government, and union organizations. Founded in 1947
as Milliman & Robertson, the company has 48 offices in principal cities in the
United States and worldwide. Milliman employs more than 2,000 people,
including a professional staff of more than 900 qualified consultants and
actuaries. The firm has consulting practices in healthcare, employee benefits,
life insurance/financial services, and property and casualty insurance. For
further information visit www.milliman.com.
Contact: Jeremy Engdahl-Johnson
Milliman, Inc.
Tel: 206-504-5547
jeremy.engdahl-johnson@milliman.com

SOURCE Milliman, Inc.

Jeremy Engdahl-Johnson of Milliman, Inc., +1-206-504-5547,
jeremy.engdahl-johnson@milliman.com