リスク管理戦略の引き下げはそもそも安全か？（英語版のみ）

相場が上昇する時にリスク選好を引き上げる保険会社は、相場が是正し始めると課題が持ち上がります。ここでは、過去の金融危機において見られたこの行動とその影響について要因を探ります。

個人は、気まぐれな投資家のグループとして有名です。恐怖や過信から、高値で買い、安値で売り、無気力により立ちすくみます。この行動は、洗練された生命保険会社が決して陥ることのない自己の利益に反した動きであることがよくあります。しかし、会社によっては、商品のボラティリティーを管理すべく十分に練られたリスク管理戦略に背を向けることがあります。そのため、生命保険会社であっても一部ではその良心に反して行動するのであろうかという疑問が持ち上がります。

ボラティリティーは様々な方法で管理可能ですが、単純な資産配分の仕組みを利用するのか洗練されたヘッジ戦略を実施するのかに関わらず、その目標は、受け入れ可能なリターンを提供しつつ、ポートフォリオのボラティリティー・プロファイルを低下させることによりリスク分布を組みかえることにあります。ボラティリティーを1パーセント・ポイント低下させるごとに、１パーセント・ポイント未満のリターンが犠牲になっているはずです。

近年、相場が反騰したことから、この広く受け入れられているリスク管理実務の価値が疑問となってきているようです。しかし、変額年金商品のファンドリターンを向上させようと試みる生命保険会社がコースを外れたのは、これが初めてではありません。

The most recent and dramatic diversion occurred during the run up to the 2007-08 global financial crisis. As markets started to accelerate several years earlier, surging to gains of more than 30% for the Dow Jones Industrial Average (DJIA) and setting new record highs, hedging was seen as little more than a drag on returns by some life insurers. With nothing but blue skies on the horizon, the temptation to step back from risk management and focus on investment returns superseded the rational perspective of a number of life insurers. For many of them, the consequences of reducing, or worse yet, removing hedging were disastrous as some lost several multiples of the money they saved on partially hedging their programs.

Misconceptions-not unlike the irrational financial behavior of retail investors–seem to have caused some insurers to fall into the same “psychological traps” that, according to research investment firm DALBAR, have often depressed equity returns for the average individual investor by some 300 or more basis points compared with standard indices. (See dalbar.com and the report 24th Annual Quantitative Analysis of Investor Behavior). Whether it’s the indiscriminate optimism that takes hold of some investors during a bull market or the “narrow framing” that causes investors to ignore the potential consequences of their decisions or the ”mental accounting” that blinds investors to unreasonable risk, some insurers, despite their sophistication, seem to have fallen prey to many of the same psychological traps of individual investors. (See Out-of-balance and off course, a case study.)

Like individual investors who have lost sight of their goals only to return to a prudent investment strategy after a financial crisis, some life insurers, which were exposed to the worse effects of the 2007-08 recession, returned to the risk management fold at the bottom of the recession, often redoubling their risk management programs at a hefty price just after the tail event.

The same dynamic now seems to be in play. As markets gain traction and returns hit new highs, the same temptation has gripped a number of insurers. This time the lure of improving returns has acquired a new dimension because of many insurers’ reallocation of hedging costs from their balance sheets to the funds offered in their variable annuity products. In many cases, the reallocation has reduced the cost of guarantees provided by insurers. Insurers cannot only offer the guarantee much more cheaply, but they also have seen an improvement in their capital and reserving positions. This stems from the fact that the funds are being risk managed, which reshapes the tail distribution that in turn drives their capital and reserving positions.

A win-win? If only. The reallocation of the hedging costs to the funds has made returns look less competitive to clients, which has caused sales to slump. This drop-off has re-ignited discussions about removing hedging strategies.

Further evidence of the pressure to remove hedging can also be seen with the back seat that risk management discussions have taken at life insurers. Just after the 2007-08 crisis, risk management was a primary focus at many conferences and the focus on investment returns was a secondary consideration. But as pressure has increased to improve returns, risk management once again seems to be relegated to the fringes.

The balance between returns and risk management is indeed a delicate one. But the question must be asked: if risk management was viewed as an important part of a life insurer’s strategy just after a tail event occurred when returns were in the cellar, why isn’t risk management still important today? What has changed?

Markets and regulations have changed since the late 2000s. But couldn’t the same be said after the dot-com bubble, the 1989 junk bond debacle, or the 1980s savings and loan crisis whose predatory lending practices some say lingered and contributed to the Great Recession? We think we’ve learned from this tail event, but the possibility of asset bubbles, over exuberance, geo-political uncertainty, a credit crunch, deflation, terrorism, and a host of other known and unknown risks remind us of how vulnerable market conditions can be to a new shock.

If economic expansions died of old age, preparing for a downturn would be a simple matter of counting down the years and risk management would be routine. But it isn’t. Today more than ever, a risk management strategy requires deliberate planning and commitment to weather the next storm.

Out-of-balance and off course, a stress-on-stress scenario

In the early to mid-2000s, a life insurer had amassed a variable annuity book of several billion dollars. The book of business contained various guarantees that ensured a minimum return on the performance of the underlying funds, which had exposures not only to the major developed markets but also to several developing and emerging markets around the world.

At the time, the insurer had a robust hedging program in place. But as the market began to expand in the mid-2000s, the insurer became concerned about the margin payments required on the short futures positions. The decision was made to remove hedging completely for certain markets and to reduce hedging in other markets. The insurer took these steps because it assumed that:

• Emerging markets had decoupled from developed markets, changing market dynamics by greatly reducing the possibility that the emerging markets would decline in tandem with a decline in developed markets.
• Because it was unlikely that the emerging markets would be lower over the long term from where they were at the present time, the insurer’s guarantees, which were also long term, were well supported.
• The margin calls had started to cause a liquidity issue for the insurer.
• The insurer was “leaving money on the table” by fully hedging in this rising market.

In deciding on this strategy, the insurer reviewed various Value at risk and stress test scenarios whose results showed dollar losses that the insurer was confident it could absorb should the extreme scenarios occur.

What happened a couple years later is now obvious. The company suffered losses in excess of a billion dollars as the markets declined globally. Viewing the initial decline as a minor correction, the insurer was reluctant to increase its hedging. As the market continued falling, paralysis further crippled management’s decision-making ability. During the crisis, no one wanted to make a decision that could turn out to be wrong.

Losses were exacerbated by the fact that the emerging markets, contrary to the insurer’s assumption, were hit harder than other markets during the downturn. Policyholder lapses also went to zero as the guarantees became extremely valuable. Moreover, total losses for the insurer’s bond portfolio (which did not anticipate a stress on stress scenario) skyrocketed because of the credit crisis.

At the beginning of 2009, a new team, which was tasked with reviewing the risk management of the guarantees, decided to fully hedge all exposures right at the start of one of the biggest bull markets in history.

What did the insurer learn?

• Risk management should never be timed to the market by engaging in “risk on/risk off” behavior.
• Actual losses are harder to stomach than the same theoretical losses produced by model stress testing.
• Never ignore stress-on-stress type scenarios that can easily occur when market shocks happen.

Behavioral finance lessons apply now more than ever as markets continue to climb and risk appetite increases by investors and institutions.