January 12, 2010
As a medium sized life insurer with an equity indexed annuity (EIA) portfolio, we are quite active in the options markets. We have a strong preference for the ability to trade notional values less than $10,000,000. Our new and rollover EIA volumes are potentially "at-risk" for several days before we can accumulate a hedgeable minimum notional of $10,000,000. We also have a strong preference for PM option price settlements. We have difficulty rolling/replacing option hedges with AM settlements due to the potential for (1) "gap" opening markets, and (2) the occasional decoupling between AM index settlements and the actual levels that the index (and futures) traded that morning. In sum, the more flexibility/granularity we have in terms of FLEX option dates with PM expirations and small minimum notionals (preferably $0), the more effectively can we taylor and use FLEX options for our EIA hedging needs. Thank you for your attention to these concerns.