1 / 7

Technical Provisions Task Group

Technical Provisions Task Group. 29 November 2012. Lance Osburn. SAM Risk-free Rate Workshop. Old Mutual Perspectives. There are a number of valid arguments in support of either the bond or swap market as the basis for a risk-free curve

mercer
Download Presentation

Technical Provisions Task Group

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Technical Provisions Task Group 29 November 2012 Lance Osburn SAM Risk-free Rate Workshop

  2. Old Mutual Perspectives • There are a number of valid arguments in support of either the bond or swap market as the basis for a risk-free curve • Electing only one gives rise to a number of both theoretical and practical complications including restricting the hedging universe in a constrained market • Seek consistency between SII, IFRS and MCEV curves to avoid complexity and seek to ensure 3rd country equivalence with SII • Although different curves may not be significant in a solvency evaluation context it is material for valuation and hedging purposes • The base curve should be product specific and liquidity, matching and residual risk adjustments can be captured in an appropriate premium or risk margin • Strongly favour a principles based approach to selecting from a suite of curves rather than a strictly prescribed basis

  3. Swaps Market Considerations • Flexibility & Credit Risk • Hedging instruments can be tailored to specific liability characteristics • Not all swap arrangements are credit risk equal and highly dependent on CSA • Market Depth & Liquidity & Participating Banks • Depends on Term & Technical Market Factors • Zero-sum Nature of Derivative Contracts depends on offsetting market interest • Market Developments • Banks have begun charging CVA charges to account for counterparty risks • There is a pending Basel III drive towards a central clearing repository which may increase capital requirements and drive product consolidation • Dodd-Frank and other regulations could dampen risk appetite and presence of participating banks • Real Rates • Real swap market is illiquid & expensive, complicated by negative real rates

  4. Bond Market Considerations • Nominal bond market continues to improve and lengthen… • Recently introduced the R2048 being a 37 year maturity bond • There is a weekly supply of long dated hedging stock • Inflation Linked bond market continues to improve and lengthen… • Recently introduced the I2050 being a 39 year maturity bond • The curve has been become more populated and tradable over the past 2 years • JSE has introduced a real bond curve for publication • Basel III Implications • Bank will have an increased liquid asset requirement increasing demand for bonds • Demand for highly rate credit assets will rise • Market Developments • Drive for a central order book with uncertain impact on market liquidity • South Africa continue to face the pressure of sovereign rating downgrades

  5. Thank you

  6. Colour Palette Green R:0 G:135 B:101 Orange R:243 G:117 B:3 Blue R:51 G:204 B:204 Gold R:255 G:204 B:0 Green R:197 G:222 B:168 Dark Grey R:191 G:191 B:191 Light Grey R:234 G:234 B:234 Black R:0 G:0 B:0 Green R:0 G:180 B:133 Green R:146 G:208 B:80

  7. Regulatory Information Old Mutual Investment Group (South Africa) (Pty) Limited Physical Address: Mutualpark, Jan Smuts Drive, Pinelands, 7405 Telephone number: +27 21 509 5022 Old Mutual Investment Group (South Africa) (Pty) Limited is a licensed financial services provider, FSP 604, approved by the Registrar of Financial Services Providers (www.fsb.co.za) to provide intermediary services and advice in terms of the Financial Advisory and Intermediary Services Act 37 of 2002. Old Mutual Investment Group is a wholly owned subsidiary of Old Mutual (South Africa) Limited. Reg No 1993/003023/07. The investment portfolios may be market-linked or policy based. Investors’ rights and obligations are set out in the relevant contracts. Market fluctuations and changes in rates of exchange or taxation may have an effect on the value, price or income of investments. Since the performance of financial markets fluctuates, an investor may not get back the full amount invested. Past performance is not necessarily a guide to future investment performance. Personal trading by staff is restricted to ensure that there is no conflict of interest. All directors and those staff who are likely to have access to price sensitive and unpublished information in relation to the Old Mutual Group are further restricted in their dealings in Old Mutual shares. All employees of Old Mutual Investment Group are remunerated with salaries and standard short-term and long-term incentives. No commission or incentives are paid by Old Mutual Investment Group to any persons. All inter-group transactions are done on an arms lengths basis. In respect of pooled, life wrapped products, the underlying assets are owned by Old Mutual Life Assurance Company (South Africa) Limited who may elect to exercise any votes on these underlying assets independently of Old Mutual Investment Group. In respect of these products, no fees or charges will be deducted if the policy is terminated within the first 30 days. Returns on these products depend on the performance of the underlying assets. Old Mutual Investment Group has comprehensive crime and professional indemnity insurance. For more detail, as well as for information on how to contact us and on how to access information please visit www.omigsa.com.

More Related