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Impact of Variation Margining on EU Insurers’ Liquidity: An Analysis of Interest Rate Swaps Positions


  • Alexandra de Jong
  • Alin Draghiciu
  • Linda Fache Rousová
  • Alessandro Fontana
  • Elisa Letizia



Insures use derivatives to hedge risks from investments portfolios and underwriting, but this exposes them to liquidity risk. This study uses Solvency II reporting data to assess to what extent European (re-)insurers would be able to meet potential variation margin calls on interest rate swaps portfolios. Interest rate swaps pose the largest share of (re-)insurers derivatives’ portfolios. We consider several shifts to the yield curve, calculate the corresponding variation margin calls, compare them to liquid assets available to insurers and derive the potential liquidity shortfalls. Our results reveal that there may be a liquidity risk for (re-)insurers stemming from the use of derivatives, in particular interest rate swaps (IRS). This reflects both high IRS exposure and insufficient holdings of cash and liquid assets. Based on the analysis presented in this article we conclude that some insurers have not yet adapted their asset allocation and liquidity management practices to the (new) requirements on margining practices which have been introduced as part of the OTC derivatives reform.

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  • Alexandra de Jong & Alin Draghiciu & Linda Fache Rousová & Alessandro Fontana & Elisa Letizia, 2019. "Impact of Variation Margining on EU Insurers’ Liquidity: An Analysis of Interest Rate Swaps Positions," EIOPA Financial Stability Report - Thematic Articles 16, EIOPA, Risks and Financial Stability Department.
  • Handle: RePEc:eio:thafsr:16

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    References listed on IDEAS

    1. Kyal Berends & Thomas B. King, 2015. "Derivatives and Collateral at U.S. Life Insurers," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 21-37.
    2. Jorge Abad & Iñaki Aldasoro & Christoph Aymanns & Marco D'Errico & Linda Fache Rousová & Peter Hoffmann & Sam Langfield & Martin Neychev & Tarik Roukny, 2016. "Shedding light on dark markets: First insights from the new EU-wide OTC derivatives dataset," ESRB Occasional Paper Series 11, European Systemic Risk Board.
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    More about this item


    insurance; variation margin; liquidity;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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