AXA Equitable Posts Strong Buffer Annuity Sales

But the recorded value of the derivative contracts fell to negative $2 billion, from negative $316 million a year earlier.

A derivative contract is an arrangement that’s designed to pay off when some investment market value, such as a stock market index, performs in such a way that it triggers a payment provision included in the derivative contract.

AXA Equitable’s derivative contracts protect the company’s economic value and statutory capital, but, when presented using U.S. Generally Accepted Accounting Principles accounting rules, they are more sensitive to changes in market conditions than the underlying annuity product liabilities, AXA Equitable said in a discussion of its results included in the earnings announcement.

“This is a large source of volatility in net income,” the company said.

The company said in its 10-Q report — the official quarterly report it files with the U.S. Securities and Exchange Commission — that it uses several forms of hedging: one hedging strategy for guaranteed minimum income benefits; a second, well-established, dynamic hedging strategy for its variable annuity benefits guarantees; and a new, static hedging strategy, to protect the company’s statutory capital against stress scenarios.

“The implementation of this new program in addition to our dynamic hedge program is expected to increase the size of our derivative positions, resulting in an increase in net income volatility,” the company said in the 10-Q. “The impacts are most pronounced for variable annuity products in our individual retirement segment.”

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