From economic uncertainty to new regulatory requirements, U.S. annuity providers must manage a range of modern challenges. With periods of sustained volatility looking likely, and fees under scrutiny, the hedging of annuities, in particular, faces new operational demands. Providers are rising to this challenge by delivering increasingly against five key objectives.
As a result of uncertain interest rates, regulatory changes like the DOL Fiduciary Rule and shifting demographics, insurers are introducing innovative new products. These include hybrid products such as buffered annuities, new methods for crediting interest on fixed index annuities and offering policyholders more flexibility in the choice of funds in their variable products.
In a challenging market, annuity providers are looking to reduce costs and operational complexity. They are delivering these efficiencies by consolidating the different platforms they may use for hedging and actuarial modeling – and making greater use of the cloud.
Against a backdrop of significant market and geopolitical uncertainty, providers can ill afford to generate losses through unintended and un-hedged market risk exposures. They are therefore implementing robust, more sophisticated risk management platforms that deliver real-time decision support and a toolkit for inspecting and optimizing their hedging strategies.
As highly regulated entities, insurers need risk management platforms with full audit capabilities, secure, authorized access to data, controlled production environments – and the ability to define dynamic and static compliance rules for market exposures and trading activities. But they also require the flexibility of an “open” platform that can be customized to meet their diverse needs. These apparently conflicting demands are driving firms towards systems that offer the best of both worlds.
Many insurers are looking to break down the silos that exist within their organization to drive collaboration and connectivity – and ultimately deliver a coherent view of risk across their balance sheet. The traditionally separate actuarial and investment/hedging teams provide a case in point, with technology seen as an important means to connect them.
To meet these five modern objectives, annuity providers need a modern hedging environment to match – a comprehensive technology platform that can support their strategies efficiently from end to end.
Once, a fragmented landscape of disparate solutions would have been necessary for managing complex annuity products. Today, a consolidated platform is by far the best option for meeting hedging demands, delivering a single, real-time view of risk that helps lower costs, improve transparency and control – and ultimately, support more effective hedging decisions.
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