The currently laid down provisions regarding initial margin and haircuts focus on aspects and requirements of the banking sector and do not cater for specifics of the insurance business. Insurance Europe believes that no differentiation between internal and external credit ratings should be made to define assets’ eligibility. Insurance Europe advocates for the elimination of concentration limits applied to government bonds, in line with other regulations such as Solvency II.
Contrary to the EMIR intention, a number of currently envisaged provisions would significantly limit the application of the intra-group exemptions. Insurers continue to have significant concerns regarding the central clearing environment and how obligations will impact insurers’ investment behaviour, counterparty risk exposure and performance.
The strengthening of the derivatives framework in an OTC environment should strike a balance between the need to mitigate counterparty risk and the potential economic risks and costs that could derive from the proposed measures. Excessive requirements for derivatives may result in an excessive cost of hedging financial risks, and therefore discourage hedging operations.Any additional costs arising out of the margin requirements will, directly or indirectly, be passed on to policyholders. Therefore, every effort should be made to ensure that costs associated with non-centrally cleared derivatives do not become prohibitively high and eventually harm policyholders.
Full position paper
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