A premier writer of variable annuity products with embedded guarantees uses its MoSes software to calculate the sensitivity of these guarantees to market conditions. It then used this information to ensure effective variable annuity hedging for guarantees.
The volume of data processed in these hedging calculations is truly astounding. Distributed processing, where the projection task is split into smaller tasks and assigned to hundreds of computers on a grid, gets the work completed in a fraction of the time otherwise required.
By hedging embedded guarantees, this variable annuity writer is better able to manage short-term risk, such as GAAP earnings volatility and statutory surplus volatility. In the long term, hedging helps protect this company from the risk that either capital markets or contract-holder behavior greatly deviates from what was expected.