Question-and-Answer Session
Operator
(Operator's Instructions) Our first question goes to Suneet Kamath with Sanford Bernstein. Please go ahead.
Suneet Kamath - Sanford Bernstein
Thanks and good morning. I had a question about the variable annuity business and the changes in the product that you talked about. What I'm wondering is how have the changes that you've made changed the return profile for that product, particularly given different market scenarios as you run them through in terms of the new versus the old, thanks.
John R. Strangfeld Jr.
I think Bernard Winograd will take that.
Bernard B. Winograd
Good morning. I think the overall scene here is that we are watching the evolution of this market with the benefit of being the low-cost provider of living-benefit guarantees at the moment. And the reason for that is embedded in the auto rebalancing design which by definition gives us less to hedge than the people we are competing with and because hedging has become in the past year the most expensive newly expensive part of the product offering, we find ourselves in the enviable position of having a cost advantage.
And the way we've chosen to take advantage of that gets to the answer to your question which is we are taking market share, but also raising prices to remain competitive and what we've done in the design or in the changes between HD7 and HD6 is, as we indicated before, taking down the rollup rate from seven to six, raising the C from 75 to 85 basis points, and making some other changes that all have the effect of giving us more revenue for what we sell and leaving us with a benefit that is still highly competitive in the marketplace.
So what we've also observed overall is that because of the cost advantage we've been able to do all that and see the expected return of all upwards as the marketplace evolves which means that currently our expectation for the margins or the return on equity involved in supporting HD6 are in the high teens which is up a bit form the mid teens kind of expectation we had for HD7 before.
Suneet Kamath - Sanford Bernstein
That's helpful. And I'm assuming that the high and mid teen numbers sort of assume a stable equity market environment. I guess my question was really around what happens if we go back to something that we saw over the past 18 months or so. How low could those returns go or what would be the ROE differential between the new product and the old product?
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