
Insurers slowly getting to grips with central clearing
Survey shows insurers are still grappling with challenges of central clearing

The third annual BNY Mellon/Insurance Risk collateral management survey reveals how insurers are grappling with the challenge of central clearing for over-the-counter derivatives.
The new regime is brought into effect by parts of the Dodd-Frank legislation in the US and by the European Market Infrastructure Regulation (Emir) in Europe, and promises a fundamental readjustment of practice in the area of collateral management. The new regime means that firms will, for most trades, clear through a central counterparty and will have to post both initial and variation margin, with the former being cash or sovereign bonds and the latter cash only.
Companies in the US are already clearing OTC contracts centrally and have been doing so since mid-2013. For European firms, central clearing is expected to become effective in the summer of 2016. Until now, most insurers have been unfamiliar with posting initial margin. Nor do they often post cash-only as variation margin.
Key findings in the survey, which was carried out between July and September this year were:
- a growing number of insurers are posting initial and variation margin on OTC derivatives positions as US Dodd-Frank rules take effect and firms elsewhere follow the trend towards more frequent posting of higher quality collateral;
- the number of firms claiming to understand the implications of the move to central clearing has fallen with Europeans trailing behind their North American counterparts;
- confidence remains low among insurers that they hold enough assets of sufficient quality to meet collateral obligations; and
- more firms this year see opportunities to generate income arising from the OTC derivatives reforms, but a still larger group take the opposite view.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Insurance
The future of life insurance
As the world constantly evolves and changes, so too does the life insurance industry, which is preparing for a multitude of challenges, particularly in three areas: interest rates, regulatory mandates and technology (software, underwriting tools and…
40% of insurers fail to specify climate as a key risk – LCP
Despite regulators’ urging, many UK and Irish insurers omit climate from risk statements, says report
Libor leaders: Prudential takes SOFR for a test drive
Test trades have allowed US insurer to start getting used to a life without Libor
Fed to push ahead with capital regime for single US insurer
Prudential faces risk capital add-ons unless it sheds “systemically important” label
Brexit dims hopes for Solvency II change in UK
Lawyers say political tensions may have killed off chance of reform, following PRA U-turn
BoE creates volatility adjustment ‘stepping stone’ for insurers
Dynamic VA may be used for assets that fail to qualify for matching adjustment, say experts
No plans to scrap systemic insurer rules, says IAIS chair
A US regulator claims Europeans asked IAIS to chart own course after FSB moved to ditch G-Sii list