Securities lending invaluable to insurers, says Swiss Re director
12 January 2018 Zurich
Image: Shutterstock
鈥淭he securities financing transactions (SFTs) market benefits from insurers and insurers benefit from the SFT market鈥�, according to Richard Hochreutiner director of head of global collateral at the Swiss Re Group.
Contributing to the International Capital Market Association鈥檚 (ICMA) first quarter report of 2018, Hochreutiner added that 鈥渋nsurers are watching the developments in the SFT market closely, and strongly welcome all efforts that benefit market depth, collateral fluidity and liquidity鈥�.
In the report, Hochreutiner quoted an International Securities Lending Association (ISLA) survey that found between 5 percent and 6 percent of the global market for SFTs is estimated to be attributable to the insurance industry.
He said that percentage included securities lending and repos, but claimed the actual participation may be even higher.
In the report, Hochreutiner concentrated on risk reduction, yield enhancement, and collateral.
Hochreutiner said: 鈥淯sing collateral transformation transactions allows insurers to convert securities. SFTs 鈥� in this case securities lending and borrowing 鈥� are a highly efficient way to temporarily convert securities into other securities, without incurring significant changes in asset allocation and the related transaction costs.鈥�
Though he warned: 鈥淪hould the SFT market no longer allow for efficient collateral transformation, insurers would be forced to adapt the way they invest [...] the impact of which will be a reduced return on investment for client and insurer alike.鈥�
Hochreutiner also said that yield, especially yield generated at marginal additional risk, is 鈥減articularly welcome on saving products with their long-term investment horizon.鈥�
He claimed that insurers in particular appreciate and abide by the legal frameworks in terms of securities lending and borrowing transactions, which is outlined in ISLA鈥檚 Global Master Securities Lending Agreement.
Contributing to the International Capital Market Association鈥檚 (ICMA) first quarter report of 2018, Hochreutiner added that 鈥渋nsurers are watching the developments in the SFT market closely, and strongly welcome all efforts that benefit market depth, collateral fluidity and liquidity鈥�.
In the report, Hochreutiner quoted an International Securities Lending Association (ISLA) survey that found between 5 percent and 6 percent of the global market for SFTs is estimated to be attributable to the insurance industry.
He said that percentage included securities lending and repos, but claimed the actual participation may be even higher.
In the report, Hochreutiner concentrated on risk reduction, yield enhancement, and collateral.
Hochreutiner said: 鈥淯sing collateral transformation transactions allows insurers to convert securities. SFTs 鈥� in this case securities lending and borrowing 鈥� are a highly efficient way to temporarily convert securities into other securities, without incurring significant changes in asset allocation and the related transaction costs.鈥�
Though he warned: 鈥淪hould the SFT market no longer allow for efficient collateral transformation, insurers would be forced to adapt the way they invest [...] the impact of which will be a reduced return on investment for client and insurer alike.鈥�
Hochreutiner also said that yield, especially yield generated at marginal additional risk, is 鈥減articularly welcome on saving products with their long-term investment horizon.鈥�
He claimed that insurers in particular appreciate and abide by the legal frameworks in terms of securities lending and borrowing transactions, which is outlined in ISLA鈥檚 Global Master Securities Lending Agreement.
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