Reversal of fortune

The precipitous decline in long-term interest rates at the tail end of 2008 caused mayhem for pension schemes and insurers subject to market-consistent regulation of their liabilities. As they attempted to hedge their long-dated liabilities, it simply forced the discount rate lower, thereby increasing the size of their liabilities.

This “ALM death spiral”, as one Swedish insurance risk manager called it (see Life & Pension Risk, February 2009), received much attention but the importance of swap