The financial services industry faces nothing less than a seismic shift in the use of collateral during the next 12 to 18 months, as it moves from an off-market, over-the-counter environment into a listed, centrally-cleared one. Insurers and other buy-side firms in particular will have a greater need to post initial and variation margin in the shape of high-quality collateral when using derivatives.
Insurance Risk and BNY Mellon, with assistance from Ernst & Young, conducted a survey to find out how insurance companies are preparing for the new clearing regime and the opportunities and challenges that the changes will bring.
The survey illuminates that seismic shift:
• more than half of insurers (53%) surveyed expected to participate in the new cleared environment;
• half of the respondents (50%) believed their organisation will increase its use of derivatives in the coming years;
• yet only a small minority (13%) believed they will have enough assets of the required quality in their investment portfolios to meet the collateral requirements of the new environment.