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Industry requests exemption from EMIR central clearing obligations 

August 18, 2015

Insurance Asset Risk

Insurers that use derivatives for hedging should be exempt from the central clearing obligations under the European Markets Infrastructure Regulation (EMIR), according to trade federation Insurance Europe.

In response to the European Commission's EMIR consultation paper, the federation cited insufficient opportunities for long-term investors, such as insurers and pension schemes, to transfer non-cash collateral with central counterparties (CCPs).

Because CCPs are likely to only accept cash as a variation margin, European insurers managing long-term products risk being forced to either hold unnecessary amounts of cash; sell assets when cash is needed; monetise assets via the repo market; or use derivatives less often – threatening the provision of long-term insurance products.

The EMIR came into force in 2012, but elements of it are still being developed. It was designed to reduce counterparty risk in the over-the-counter derivatives market, requiring certain types of derivatives to pass through central clearing. However, the regulation has inadvertently increased insurers' exposure to a liquidity squeeze.

Read more: Insurance Asset Risk

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