Description: Annuities are presenting ever-greater risks for the direct writers: • Variable annuities with guaranteed minimum and enhanced death benefits and income benefits • Fixed annuities with multi-year rate guarantees are capital intensive • In-force structured settlements have asset portfolios with declining investment yields • The impact to the payout annuity market from lengthening life expectancies From the Record of the Society of Actuaries, Volume 27, No. 3, Session 146 PD of the New Orleans Annual Meeting

Description: There is no “industry standard” approach to managing the vega (volatility) risk inherent in Variable Annuity Guarantees, Fixed Indexed Annuities and other equity-linked obligations. In this session, we will introduce and analyze a range of reinsurance solutions, including full vega risk retention, full vega risk transfer and more sophisticated or custom structures that split the vega risk between the insurer and the reinsurer in various ways. We will also explore other approaches in bespoke risk coverage and show the impact of different assumptions on a generic “VA Guarantee Cost Estimate” that has been developed by Munich Re.

Description: The proposed revisions to the variable annuity statutory framework and the FASB targeted improvement for long duration contract, motivate life insurance companies to re-evaluate their hedging strategy. Recently proposed revisions of AG 43/VM-21 and C3 Phase II, reward companies that have a clearly defined hedging strategy, if the companies can demonstrate that the valuation model and capital model can estimate real hedge performance accurately. The speakers of this session will discuss the hedging implication of the proposed AG 43/VM-21 and C3 Phase II framework. Additionally, methodology computational requirements, back-testing results under different economic scenarios and the resulting hedge credits of different hedging strategies will be compared, including explicit dynamic hedge and implicit dynamic hedge. The speakers will also touch on the impact of rebalance frequency on the performance of dynamic hedge. Case studies will be presented to provide guidance on practical implementation.

Description: Regulatory change and increased focus on internal risk management are driving a renewed interest in model efficiency. In this session, we will review several new and existing tools, that show significant promise for advanced modeling of equity linked products. These include: • Clustering • Use of unique--and potentially a different number of--scenarios for each policy • Semi Monte Carlo (SMC) – this is a proprietary technique that is similar to a combination of Monte Carlo and numeric integration • Using a neural network approach to optimize some of the more complex and manual aspects of clustering and improve the fit of the clustered model • Combining SMC with the use of unique scenarios per policy

Description: Retirees will face the societal issue of inadequate savings with likely insufficient time to rectify the situation. They need immediate growth, but also the disciplines of risk management. They typically do not know how to engage with these two aspects in a harmonious manner on their own. Insurance companies are in the business of providing the solution but regulators have been clamping down in favor of simpler and more transparent products. In addition, the market reality over the last decade has been that insurers have stock betas at a multiple to the general markets with PE ratios well below. A panel of senior professionals from writers of retirement product business will present their vision of how the insurance industry can address the above dilemma, including the risks underlying the writing of the business, impact of financial markets, and regulations in the development of the business.

Description: The speakers will discuss the replication of long-term options, including a discussion of issues such as liquidity, transaction costs, slippage, impact of policyholder behavior, and machine learning algorithms to improve hedge effectiveness.

Description: Regulatory change and increased focus on internal risk management are driving a renewed interest in model efficiency. In this session, we will review several new and existing tools, that show significant promise for advanced modeling of equity linked products. These include: • Clustering • Use of unique--and potentially a different number of--scenarios for each policy • Semi Monte Carlo (SMC) – this is a proprietary technique that is similar to a combination of Monte Carlo and numeric integration • Using a neural network approach to optimize some of the more complex and manual aspects of clustering and improve the fit of the clustered model • Combining SMC with the use of unique scenarios per policy