New BNY Mellon-sponsored survey of insurers highlights lack of readiness for
cleared over-the-counter (OTC) environment
LONDON, Dec. 3, 2012
LONDON, Dec. 3, 2012 /PRNewswire/ --New research by BNY Mellon, the global
leader in investment management and investment services, in association with
Insurance Risk magazine and with support from Ernst & Young, has found that
nearly half (46%) of those surveyed have either not yet initiated or concluded
their impact assessment of the changes mandated by the European Market
Infrastructure Regulation (EMIR) and the Dodd-Frank Act – while 22% do not
believe they will be impacted at all.
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:
o78% of respondents believe that they will be impacted by upcoming
oonly 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;
o27% 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;
o53% of insurers expect to participate in the new cleared environment;
o50% 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 $4.5
trillion, approximately 20% of total insurer owned assets worldwide.
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.
Paul Traynor, Head of Insurance, Europe, Middle East & Africa at BNY Mellon,
said: "The survey suggests there is still 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. Accordingly, firms will need to optimize the use of
their collateral, converting idle assets into eligible collateral.
"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
oall standardised OTC derivative contracts should be traded on exchanges or
electronic trading platforms, where appropriate, and cleared through
oOTC derivative contracts should be reported to trade repositories, and
onon-centrally cleared contracts should be subject to higher capital
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 BNY Mellon's products and services to
better manage counterparty and market risk in their collateral transactions,
engage in more investment opportunities to help maximize their investment
returns and access new financing alternatives. BNY Mellon currently services
$2 trillion in global collateral (including tri-party repo collateral
worldwide) and approximately $100 billion in assets through its Liquidity
DIRECT(SM) investment portal, and operates one of the industry's largest
securities lending programs, with $3 trillion in lendable assets.
BNY Mellon is a global financial services company focused on helping clients
manage and service their financial assets, operating in 36 countries and
serving more than 100 markets. BNY Mellon is a leading provider of financial
services for institutions, corporations and high-net-worth individuals,
offering superior investment management and investment services through a
worldwide client-focused team. It has $27.9 trillion in assets under custody
and administration and $1.4 trillion in assets under management, services
$11.6 trillion in outstanding debt and processes global payments averaging
$1.4 trillion per day. BNY Mellon is the corporate brand of The Bank of New
York Mellon Corporation (NYSE: BK). Additional information is available on
www.bnymellon.com or follow us on Twitter @BNYMellon.
This press release is issued by The Bank of New York Mellon to members of the
financial press and media. All information and figures source BNY Mellon
unless otherwise stated as at September 30, 2012. The Bank of New York Mellon,
London Branch, registered in England and Wales with FC005522 and BR000818
Branch office: One Canada Square, London E14 5AL
Authorised and regulated in the UK by the Financial Services Authority.
SOURCE BNY Mellon
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