Illiquidity worries UK insurers in forex hedging switch

Cross-currency swaps could become more expensive as firms' demand increases

bank-of-england
The PRA, London

A lack of liquidity in the cross-currency swaps market worries UK annuity firms as they are forced to stop using forex forwards in their matching adjustment (MA) portfolios to hedge foreign currency bond holdings.

Insurers fear they will face higher costs to swap cashflows on non-sterling assets back to sterling in order to comply with MA rules in Solvency II, and that derivatives contracts will prove hard to unwind during periods of market stress.

"To comply with matching adjustment rules, we a

To continue reading...

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an indvidual account here: