Question-and-Answer Session
Operator
Thank you. (Operator instructions) And we will go first to Ed Spehar with Merrill Lynch.
Ed Spehar – Merrill Lynch
Thank you. Good morning. Just two questions, first, Fred, I was wondering if you could comment on the viability or desirability of some sort of macro hedge considering the fact that the S&P is close to 1,000 and volatility has come down, is that something that you are thinking about and perhaps make some sense to protect capital? -- given uncertainty you mentioned VACARVM for example. And then the second question is on the individual annuity DAC line, the amortization rate seemed to be higher this quarter than what we have seen in prior quarters, was there anything unusual there or is that the kind of rate we should be thinking about going forward? Thanks.
Fred Crawford
Ed, in terms of the macro hedge, we absolutely are contemplating those kinds of strategy as a company, have been talking and working within our equity risk management group on those efforts. We do believe the concepts of the macro hedge is becoming much more popular, not simply because there's a level of market recovery but more so because it feathers into this notion of converting your more GAAP oriented hedge programs to account for some of the more statutory issues going forward and moving stat reserves.
Said another way, stat reserving is much more sensitive to equity market movement than it is to the other Greeks, namely interest rates and volatility given the standard scenario under VACARVM. So companies are not only looking at a macro hedge in terms of long-term risk management characteristics, but also with an eye towards statutory reserving. So we have been working on potential solutions in that regard. We do think that recent run up in the markets makes it more attractive to look at that. As I mentioned in my comments, we have pulled off a little bit of our interest rate cover again in recognition of it being less sensitive on a statutory basis. We can divert some of that risk management funding towards a macro hedge, but you have to very careful on how you put that in place and weigh very carefully all the costs and sensitivity around GAAP and stat financials. And that's what we're working on right now.
In terms of debt amortization issues, I don’t know, Doug, if you have any comments, Doug Miller is next to me and he may be able to comment on some of the moving parts.
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