Insurers must beware a cash drought

Pressure on liquidity will increase as derivatives trading moves to central clearing

Rob Mannix at Insurance Risk

For a while the financial community has talked of how the regulation of derivatives markets will transform credit risk into liquidity risk, requiring firms to collateralise trades with cash or highly liquid securities without much thought for the availability of such assets in a crisis. While few question the logic of pushing more products into central clearing, there is a growing sense among insurers that the pressure to source collateral could become a meaningful problem in future.

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