Following our recent publications regarding the development of index universal life (IUL) and fixed indexed annuity (FIA) products across Asia, this e-alert focuses on some of the investment and hedging considerations for insurers. Based on our ongoing observations of the evolution of indexed products across Asian markets, we see several key issues have emerged. Insurers have limited experience with equity hedging. They are also actively evaluating various hedging solutions to determine which risks should be retained in house, as well as assessing the counterparty risks associated with each approach. Also, there is ongoing debate within insurance companies regarding the optimal level of risk and profit to be retained. In this paper, we discuss:

• Crediting types: Monthly sum caps (cliquets), trigger structures, rainbow strategy, and high watermark
• Underlying index choices: Benchmark and control indices
• Hedge frameworks: Static, dynamic, and hybrid hedging
• The role of risk reports in static and dynamic hedging: Why they matter