Insurers weigh the pros and cons of total return swaps

Many happy returns

Asset classes have been moving together

In the wake of the financial crisis, pension funds in many jurisdictions have been struggling with below-par funding ratios and the resultant simultaneous need to take on more risk while shelling out less of their balance sheet.

A total return swap (TRS) is one way of getting that exposure without the initial capital outlays (see figure 1 and box, page 35). The return on some given reference asset - coupons, dividends and mark-to-market changes - is swapped in exchange for a floating rate

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