Second, firms may engage in more risk transfer, not just on liabilities (securitisation, reinsurance) but also on assets and duration gaps, leading to greater use of derivatives such as interest rate swaps. Our interviews confirmed that insurance companies and sponsors of pension plans have already been placing more emphasis on ALM practices in recent years.
This will involve still greater use of fixed income assets and long-maturity interest rate swaps to match more closely their liabilities’ cash flows. Such a trend is relevant also for the current regulatory developments concerning the clearing of derivative contracts with a central counterparty. Third, portfolio shifts may alter sectoral funding patterns.