New BNY Mellon-sponsored survey of insurers highlights lack of readiness for cleared over-the-counter (OTC) environment
|PR Newswire Association LLC|
Only 32% of insurers surveyed said they understood the impacts of the new regulations and were already working towards operational readiness.
Other key findings of the survey include:
- 78% of respondents believe that they will be impacted by upcoming regulatory changes;
- only 12% of respondents believe they hold enough assets of the requisite quality within their investment portfolios to meet future collateral margining requirements and other pledges;
- 27% 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;
- 53% of insurers expect to participate in the new cleared environment;
- 50% of those surveyed believe their organisation will increase its use of derivatives in the coming years.
The survey polled 59 insurers across the life, non-life and re-insurance sectors; the respondents collectively represent assets in excess of
Under the existing regime, 64% 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% do not post initial margin and 25% don't post variation margin.
"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."
"They will also need to enhance their operations and better manage risk – be it credit, liquidity or operational risk – across a broad spectrum of markets and products. We are already seeing accelerating demand for solutions around the segregation, optimization and financing of collateral, as institutions look for answers to a broad range of questions that span not only collateral management, but also activities such as securities lending, liquidity management and derivatives servicing."
The G20 initiative, Dodd-Frank and EMIR are designed to address the deficiencies within the OTC derivative markets highlighted through the financial crisis: notably shortcomings in the management of counterparty credit risk and the absence of sufficient transparency. The regulations propose that:
- all standardised OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties,
- OTC derivative contracts should be reported to trade repositories, and
- non-centrally cleared contracts should be subject to higher capital requirements.
A complete version of the survey results can be found at www.risk.net/2228818
Notes to editors:
Global Collateral Services offers a comprehensive suite of capabilities to help our clients address their collateral, liquidity and securities financing needs. As they face evolving global regulations and rapidly changing market requirements, clients can leverage
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