American OTC Derivatives Market Case Study

This case study analyzes the American over-the-counter (OTC) derivatives market within the life insurance sector for the year-end of 2023. The analysis is based on data from the National Association of Insurance Commissioners (NAIC Annual Statements). It reports that 328 U.S. insurers had derivative exposure in 2021, with life companies representing 69% of this total. The study indicates that life insurance companies executed a total notional amount of $3.137 trillion in derivatives, with 92% classified as not hedging effective. Swaps and forwards constitute 55% of the market, while options account for approximately 45%. The primary risk factors identified are interest rates and equities, with interest rates dominating at 50%. The study further details the types of hedging strategies employed, including portfolio and specific asset hedges, and categorizes the effectiveness of these hedges. The findings suggest a stable market trend consistent with previous years.