Asian insurers slow to embrace central clearing

August 1, 2013 Risk.net 0 Comments

Author: Blake Evans-Pritchard

Source: Insurance Risk | 26 Jun 2013

Asia globe

New clearing rules are not on the agenda of most insurers in Asia, but as derivatives use increases they could become more relevant. Blake Evans-Pritchard reports

A conservative regulatory framework across Asia means many life insurers on the continent are lukewarm about using derivatives, and therefore have not paid too much attention to new clearing rules that are unfolding in the region.

But some think this is about to change, as new risk-based capital (RBC) rules in the region are set to place a greater emphasis on sound risk management and persistently low interest rates continue to squeeze insurers’ investment yields.

“Derivatives [use is] on the rise in Asia and, from an insurance perspective, this is driven by a growing need to enhance insurance liability management,” says Matthew Streeter, a capital market strategist at Fincad, a Vancouver-based producer of risk management software.

“When you look at the broad landscape of insurance firms, not all of them [in Asia] are at the same level of sophistication. As the levels of sophistication and education increase, I would expect to see a growth of hedging vehicles to include swaps, futures, options and derivatives instruments that are now combined with other, more traditional, asset classes, such as fixed-income equities and commodities,” he says.

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