Contributing to the International Capital Market Association’s (ICMA) first quarter report of 2018, Hochreutiner added that “insurers are watching the developments in the SFT market closely, and strongly welcome all efforts that benefit market depth, collateral fluidity and liquidity”.
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: “Using collateral transformation transactions allows insurers to convert securities. SFTs – in this case securities lending and borrowing – are a highly efficient way to temporarily convert securities into other securities, without incurring significant changes in asset allocation and the related transaction costs.”
Though he warned: “Should 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.”
Hochreutiner also said that yield, especially yield generated at marginal additional risk, is “particularly welcome on saving products with their long-term investment horizon.”
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’s Global Master Securities Lending Agreement.