Overview of Commonly Used Risk Management Strategies

Rajeev M Dutt

The many variations of offered retirement guarantees were made possible due to the advancement of financial risk management practices by insurance companies and investment bankers after the market for variable annuity reinsurance collapsed in early 2000. Since then, these techniques have had several more volatility events to vet their overall functionality and effectiveness. Post the global financial crisis, prudent risk management in product designs and pricing, with a strong focus on the company’s internal risk capital framework, have been essential elements when bringing new products to market. The advancements and acceptance of sound financial risk management practices have facilitated the development of living benefits that target the primary goals of retirement planning: protecting capital and providing income. With increasing focus on longevity risk, future iterations may possibly have a greater emphasis on keeping pace with inflation.

This chapter will review the general risk management practices that industry participants have been refining since the mid-2000s. Carriers may practice some combination of the following to address their board or shareholder mandates.

RISK