Move to swaps discounting presents ALM challenges for with-profits funds

The move to discounting liabilities using swap rates under Solvency II will present challenges for UK with-profits funds that have been used to matching cashflows using gilts. Against the backdrop of a volatile swap spread, insurers will need to adapt their ALM strategy. Louie Woodall reports

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Many strange and unusual disturbances rocked the UK financial system during the 2008 crisis. One was the sudden and unexpected crossing of the London interbank swap curve with the UK gilt curve. After decades of trending above gilts, the swap yields fell below gilts at the long end of the curve, falling 73 basis points below, in 2009. This negative swap spread after 25 years has outlasted the crisis, and remains volatile.

At first, this movement had little

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