Considerations for LIBOR transition and U.S. Variable Annuity Guarantee Valuations
This paper discusses risk-free curve selection and setting of the discounting spread (over the risk-free rate) for variable annuity fair valuation.
The life insurance industry across the globe is undergoing a major transformation in the face of a rapidly changing economic and regulatory landscape. The risk of sharp increases in rates and/or declines in the equity markets in the United States as well as in Europe, Japan, and elsewhere, together with recent concerns about a deflationary spiral, have helped make hedging strategies a major area of concern for insurers. Regulatory changes, such as the Dodd-Frank Act in the United States, and Solvency II and EMIR in Europe, are also likely to have a significant impact on the usage of derivatives and how these hedging strategies are deployed.
To explore trends in risk management practices and derivative usage within the insurance industry, Milliman conducted a global survey of life insurance companies that received a large number of responses from across the globe, including many of the largest companies in the industry. The findings provide an overview of current usage and practices, as well as a perspective on how derivative usage is likely to change in the future.
Some of the key results and findings from the survey include:
Milliman Derivatives Survey 2013
Our survey explores hedging strategies, which are a major area of concern for insurers due to the risk of sharp increases in life insurance premium rates, declines in the equity markets around the world, and concerns about a deflationary spiral.