We’re not ready for cleared OTC environment, say insurers
06 December 2012 London
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Nearly half (46 percent) of insurers have either not yet initiated or concluded their impact assessment of changes mandated by EMIR and the Dodd-Frank Act – while 22 percent do not believe they will be impacted at all.
The survey, conducted by BNY Mellon, also found that only 12 percent of respondents believe they hold enough assets of the requisite quality within their investment portfolios to meet future collateral margining requirements and other pledges; and 27 percent believe that they may be obliged to engage in some sort of "asset transformation" activity before being able to post the appropriate collateral – despite one-third of their bond portfolio investments being rated AA or above.
The survey polled 59 insurers across the life, non-life and re-insurance sectors; the respondents collectively represent assets in excess of $4.5 trillion.
Under the existing regime, 64 percent of respondents said they hold enough assets of the requisite quality within their investment portfolios to meet their collateral margining requirements and other pledges. Currently 54 percent do not post initial margin and 25 percent don't post variation margin.
Paul Traynor, head of insurance for EMEA at BNY Mellon said that there is some way to go before the insurance industry is geared up to engage fully with the new cleared OTC environment. “However, while they are perhaps not yet fully aligned in terms of what to do next, insurers are in a good position to cover their own needs – when they know what they are.
"Our findings also confirm insurers have relatively low available cash but are substantial holders of AAA-rated and AA-rated bonds. A significant proportion of insurers are not running a securities financing desk, and as a consequence are potentially ignoring a source of yield pick-up."
Kurt Woetzel, head of Global Collateral Services at BNY Mellon, said: "Like the rest of the financial services industry, insurers face a seismic shift around collateral over the next 12 to 18 months, as we move from an off-market, OTC environment into a listed, centrally-cleared one. Insurers and other buy-side firms will have a greater need to post margin in the shape of high-quality collateral.”
The survey, conducted by BNY Mellon, also found that only 12 percent of respondents believe they hold enough assets of the requisite quality within their investment portfolios to meet future collateral margining requirements and other pledges; and 27 percent believe that they may be obliged to engage in some sort of "asset transformation" activity before being able to post the appropriate collateral – despite one-third of their bond portfolio investments being rated AA or above.
The survey polled 59 insurers across the life, non-life and re-insurance sectors; the respondents collectively represent assets in excess of $4.5 trillion.
Under the existing regime, 64 percent of respondents said they hold enough assets of the requisite quality within their investment portfolios to meet their collateral margining requirements and other pledges. Currently 54 percent do not post initial margin and 25 percent don't post variation margin.
Paul Traynor, head of insurance for EMEA at BNY Mellon said that there is some way to go before the insurance industry is geared up to engage fully with the new cleared OTC environment. “However, while they are perhaps not yet fully aligned in terms of what to do next, insurers are in a good position to cover their own needs – when they know what they are.
"Our findings also confirm insurers have relatively low available cash but are substantial holders of AAA-rated and AA-rated bonds. A significant proportion of insurers are not running a securities financing desk, and as a consequence are potentially ignoring a source of yield pick-up."
Kurt Woetzel, head of Global Collateral Services at BNY Mellon, said: "Like the rest of the financial services industry, insurers face a seismic shift around collateral over the next 12 to 18 months, as we move from an off-market, OTC environment into a listed, centrally-cleared one. Insurers and other buy-side firms will have a greater need to post margin in the shape of high-quality collateral.”
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