Variable Annuity Volatility Management: An Era of Risk-Control

By Raghu Ramachandran and Aaron Sarfatti · Oliver Wyman · 2017 · INV201-106-25

A research report by Raghu Ramachandran of S&P Dow Jones Indices and Aaron Sarfatti of Oliver Wyman, written by Oliver Wyman in the fall of 2017 for S&P DJI. It examines the properties of alternative volatility management solutions for guaranteed variable annuities from the perspective of both policyholders and guarantee manufacturers, with a focus on the role of volatility-indexed fees in a potential "next generation" solution. Its purpose is to give manufacturers a framework for weighing the trade-offs of each solution and the implications of certain features. The SOA supplies it as study note INV201-106-25.

On the syllabus

Exam INV-201 — the whole report; outcomes 3f and 3g. The introductory study note lists an erratum: in Exhibit 22 on page 26 the 5% and 5.5% labels are incorrectly switched.

Executive Summary

1 Introduction

2 Recent Trends in Market Volatility and its Effect on Clients and Insurers

2.1 A New Era of Volatility
2.2 Product Manufacturers Response
2.3 Innovative Volatility Management Solutions
2.4 Challenges of "First Generation" Solutions

3 Analytical Results of Existing Solutions: Assessment Framework Overview

3.1 Analytical Results of Existing Solutions: Impact of Volatility Management from Manufacturers' Perspectives
3.2 Analytical Results of Existing Solutions: Impact of Volatility Management from Clients' Perspective

4 "Next Generation" Volatility Management Solutions

4.1 Motivation for a "Next Generation" Solution
4.2 Economic Performance Results
4.3 Parameter Considerations

5 Conclusions

Appendix A Product Design and Modeling Methodology

Appendix B Volatility Risk Management Solution Details

Appendix C "Next Generation" Solution Sensitivity Analysis

Appendix D Summary of Results

Sources

Variable Annuity Volatility Management: An Era of Risk-Control (Oliver Wyman, 2017) — the document: title page, authors, the note on its commissioning, the contents page for the divisions and the executive summary for the lead; the PDF was dated December 2017 and carries a 2017 copyright
Variable Annuity Volatility Management, publication page (Oliver Wyman) — the page that publishes the report under the subtitle "An era of risk-control"
INV 201 Introductory Study Note, Nov 2026/Mar 2027/Jul 2027 (SOA) — the study-note code INV201-106-25, its title and the erratum on Exhibit 22; the match of the study note to this Oliver Wyman report is by its identical title
INV 201 Syllabus, Nov 2026/Mar 2027/Jul 2027 (SOA) — the learning outcomes the note is assigned to