US life insurers take axe to FX forwards positions in Q2

Counterparty Radar: $47.5bn in G10 positions reported, a 12.9% decline from Q1

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US life insurers cut over $7 billion in notional foreign exchange forwards positions during the second quarter, largely in sterling/US dollar positions.

A total of $47.5 billion in G10 FX forwards positions were reported by US life insurers, a 12.9% decline from the previous quarter among G10 currencies. Around $5.1 billion and $1.7 billion in notional volumes were cut in GBP/USD and euro/USD positions, respectively.

Trading among non-G10s also declined by 65.6% to just $147 million, accounting for less than 1% of all trading, according to data from industry filings aggregated and analysed by Risk.net’s Counterparty Radar platform.

Athene US Life remained the largest life insurer by notional volumes with $14 billion, but cut a total of $1.1 billion in positions with BNP Paribas and Deutsche Bank. Prudential of America did not report any new trades during the quarter, resulting in a cut of $6 billion in volumes.

Metlife Life Insurance was also mostly responsible for the $168 million in notional volumes cut in positions referencing Asia-Pacific currencies.

12.9%

The decline from Q2 in G10 FX forwards positions that were reported by US life insurers

Meanwhile, Citi reclaimed its spot as the top FX forwards dealer for US life insurers, a position it last held a year ago. The US bank reported notional volumes of $5.6 billion in FX forwards positions with US life insurers, relatively flat compared with the previous quarter, growing its market share to 12%,

It overtook Morgan Stanley, which reported the biggest drop-off in volumes of nearly $1.2 billion among dealers. However, the bank was the counterparty for two of the top three trades during the quarter, both struck with TIAA with notional values of $517 million and $859 million respectively.

Royal Bank of Canada jumped into the top 10 dealer rankings, a 60.45% change in total value from the previous quarter to $2.82 billion.

The bank realised the largest quarter-over-quarter change among dealer banks with a $1.06 billion increase. The jump into the top 10 was fuelled by its increased relationship with Massachusetts Mutual Life, representing $829 million. The deals help push TIAA up a spot to third for insurers.

Mass Mutual also increased its trading relationship with State Street by $1 billion, and the Boston-based bank accounted for over a fifth of its trades. However, it was also responsible for the two largest cuts in positions with JP Morgan and Bank of America respectively.

JP Morgan was still able to sustain its spot in the middle of the top 10 overall dealer rankings due to a sufficiently increased relationship with TIAA, which represented a boost of $615 million in volume and yielded a 12.1% rise in the firm’s overall activity with JP Morgan.

Bank of America on the other hand has fallen out of the top 10 dealer rankings for insurers. The bank had the second largest overall decrease quarter over quarter for a drop of nearly $1 billion.

About this data

The information used in this analysis comes from US life insurer filings to state insurer commissioners. The filings include over-the-counter derivatives trades that were live at the time of the filing, and show details such as bank counterparty names, currencies, trade sizes and remaining maturity.

The forms are filed to insurer commissioners on a quarterly basis, and the regulators make the final filing of each fund’s quarter public roughly 60 days after the end of that period. 

It’s important to caveat the information. While these are pro forma regulatory filings and should be accurate, mistakes and miscategorisations do occur. The data was cleaned and obvious errors excluded.

As the database is updated and improved periodically, data presented may not mirror information published in previous stories. Each story reflects the most accurate representation of data at the time of publication.

Information from these filings is also the basis for a new tool, Counterparty Radar, which also includes data from mutual funds and exchange-traded funds and allows users to search the filings information themselves to discover the most popular dealers and most active buy-side firms for a range of OTC derivatives. We will track these stats every quarter, so please get in touch if something doesn’t look right, or to suggest other ways to present the data: [e-mail]