All That Shaking Promotes Annuity Risk Managers: Idea File

When your clients are trying to manage personal financial risk, they call you, and you might help them buy annuities, or cash-value life insurance.

When the issuers worry about what the S&P 500 is doing, some of them call Adam Schenck.

Schneck is happy to take the issuers’ calls.

“As a citizen, I worry about financial markets and inflation, but our strategies have done well lately,” Schenck said.

Schenck is a managing director at Milliman’s 24-year-old, Chicago-based Milliman Financial Risk Management unit, and head of that unit’s fund services arm. He said Milliman and the investors that fund the hedging vehicles it uses have plenty of capacity to help clients manage more risk.

He believes that smart use of hedging can maximize your clients’ retirement income.

“We’re obviously in a different world, but people still need to invest in equities,” Schenck said.

Hedging increases life insurers’ and clients ability to stick with equities, he added.

What It Means

In bull markets, you might think mainly about which stocks the sun is shining on.

In bear markets, you and your clients might think harder about the risk-management umbrellas.

Adam Schenck

Milliman is a Seattle-based firm that’s best known for its actuarial consulting work. Through actuarial consulting, it helps insurers do the math that makes insurance work.

Schenck’s team does something else: It helps life insurers and other institutional clients set up exchange-traded options contracts, over-the-counter custom derivatives and other hedging arrangements with companies that pump capital through the Chicago Mercantile Exchange, the Chicago Board of Trade, and other exchanges and OTC markets all around the world.

The hedging arrangements the Milliman’s team oversees, from offices in London and Sydney as well as Chicago, are protecting about $185 billion in assets.

Schenck has a bachelor’s degree in computer science and math from Eckerd College and a master’s degree in financial math from the University of Chicago. He holds the Chartered Financial Analyst professional designation.

He came aboard at Milliman in 2005, just after the 2000-2002 “dot-com bubble” tech stock price meltdown, and as a few analysts were worrying about the residential mortgage lending bubble that would soon bring about the 2007-2009 Great Recession.

Milliman Financial Risk Management

Many life insurers of all sizes have their own, in-house hedging teams. Other insurers work with outside investment firms that rely mainly on customized, over-the-counter derivatives to manage risk.

Milliman focuses mainly on providing risk management services for insurers that want to outsource part or all of their risk management operations.

Milliman can and does set up custom derivatives arrangements, but, when possible, it uses off-the-shelf exchange-traded options contracts, to hold down costs and maximize the transparency and liquidity of the hedging arrangement, Schenck said.