New derivatives rules raise life insurers' collateral needs
June 28, 2013 by Elizabeth Festa
New derivatives regulations that kicked in this month will be costly for U.S. life insurers, requiring between $10 billion to $30 billion of additional collateral and liquidity needs over time for the top 20 U.S. life insurers, according to a new report from Moody’s Investors Service.
Life insurers are major users of derivatives, which are used, among other things, to hedge interest rate risk and variable annuity (VA) portfolios. They are heavy users of interest rate swaps in particular.
So when new derivative regulations under Title VII of the Dodd-Frank Act went into effect June 10, U.S. life insurers, among other “financial end-users,” are now required to not only trade and clear their interest rate swaps on registered exchanges or clearing houses, but to post larger sums of higher quality collateral, said the report, written by Laura Bazer, Moody’s senior credit officer. Click here to read…
