Systemic regulation and solvency regulation are pulling the world’s biggest insurers in opposite directions, leaving them uncertain how – or whether – they will be able to use derivatives under future rules.
The cause of this regulatory ‘catch-22’, as one risk manager terms it, is a clash of perspectives. The first – enshrined in risk-based capital (RBC) regimes such as Solvency II – sees derivatives as a helpful tool to manage risk. The second, that of systemic rule-setters, sees derivatives as
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