The Commission has proposed some welcome changes to the European Market Infrastructure Regulation (Emir) relevant to insurers but a multitude of concerns persist, according to industry association Insurance Europe.
In feedback to a consultation paper on Emir launched by the Commission in May, Insurance Europe responded warmly to the proposed removal of dual-side reporting requirements for exchange-traded derivatives as well as attempts to improve smaller insurers' access to central clearing services by reducing administrative burdens.
Market participants had seen the reporting of deals by both parties as a major administrative headache, and the move brings the EU into line with US practice.
Insurance Europe also welcomed the clarification that central clearing obligations may be temporarily suspended by the European Securities and Markets Authority to ensure that insurers are not exposed to central counterparty failures or their exit from certain clearing services.
Not all of insurers' concerns were address by the Commission however. Insurance Europe believes single-side reporting should be applied to all central clearing and not just exchange-traded derivatives. It also argued that collateral requirements for intragroup transactions should be removed.
"Intragroup derivative transactions only affect the internal parties involved without any impact on the external derivative market, placing them outside of the scope of Emir's objectives around derivative market stability," Insurance Europe wrote.
The association is further concerned by the continued expectation that insurers post only cash as collateral, rather than other liquid assets including government bonds, pointing to the dysfunctional repo market and the "unreasonable prices" on offer from clearing members for collateral transformation.
"This has a disproportionate effect for insurers with a limited volume of activity, who would be forced to reduce their use of important hedging tools due to the excessive costs."
Insurers may simply not be able to meet cash calls fast enough, it added, which could result in systemically relevant liquidity risk.