Hedging the individual investor
Ken Mungan, Milliman’s Financial Risk Management practice leader, is quoted extensively in an article about Milliman’s customized hedging strategies for individual accounts, in the March 16 edition of Retirement Income Journal (access to the entire article requires login).
“We’re seeing the emergence of a client account on a platform with a protection strategy that would contain hedge aspects,” according to Mungan. “So many people have withdrawn from the market. This would give them protection.”
Milliman’s new service is driven by three factors: the failure of diversification during the recent global financial crisis, low bond returns, and the need for Baby Boomers to invest in equities in order to make up for their failure to save enough for retirement.
Mungan explains that Milliman’s approach offers investors a middle path—between advisory services with unprotected portfolios and complete market exposure, on one hand, and variable annuities with living benefits, on the other. Individual investors can participate in uncomplicated hedges that protect against severe downturns without abandoning gains if markets rise. It’s an approach uniquely suited to investors with anxieties about entering a volatile equities markets still feeling the effects of the recent financial crisis.
Does this service compete with some of Milliman’s traditional clients, such as insurers offering VA products?
Not really. In fact, Mungan thinks Milliman’s approach will actually create new business for insurance companies—by increasing the demand for unbundled living benefit riders, aka stand-alone living benefits (SALBs).
More details on the approach can be found at “Overcoming challenges through portfolio protection” on the Milliman website, an article Mungan co-authored with his Chicago colleagues Ghalid Bagus and Matt Zimmerman (who is also quoted in the RIJ article).