As regulations have generalised the use of collateral to mitigate counterparty risk and require market participants to meet collateral calls over the full lifetime of an OTC derivative, asset owners are exposed to increased liquidity risk. The challenge has been exacerbated by recent market volatility.
Using BNP Paribas’ new solution based on big data analytics and powerful calculations engines, AIA is able to assess its collateral needs at any given time and take into account collateral constraints in its trading decisions. AIA can reprice derivatives and collateral in more than 3,000 economic scenarios. A powerful data visualisation layer enables AIA to drill into the data and proactively manage its derivatives books in different economic scenarios.
Dr. Mark Konyn, Group Chief Investment Officer at AIA Group, said:
“Managing derivatives portfolios in different jurisdictions across Asia Pacific requires robust risk management and governance processes. Tools that support the asset owner calibrate collateral requirements are critical. We are very pleased with the solution developed by BNP Paribas, which has enabled AIA to manage the liquidity risk and collateral requirements.”
Philippe Tassin, Head of Asset Managers and Asset Owners, Asia Pacific at BNP Paribas Securities Services, said:
“For our asset owner clients, predicting their collateral needs, and optimising increasingly scarce collateral resources, have become vital to the success of their investment and risk management practices. They have to ensure they can satisfy every collateral call over the lifetime of each OTC derivative in their books.”
“Our solution enables them to manage the huge amount of data and complex calculation and pricing models required to simulate a multitude of what-if scenarios across the lifetime of their derivatives portfolios. “
The Predictive Collateral Coverage Reporting provided to AIA was recently awarded “Best Data Analytics Project” by The Asset.
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Notes to Editors:
BNP Paribas Securities Services’ new service enables asset owners to:
- Produce full, transparent and auditable exposure analyses of the collateral coverage for their current OTC derivatives positions by counterparty, country, or firm entity
- Determine the peak credit and liquidity exposures based on those positions
- Calculate their worst-case collateral coverage ratio, to identify how much they may be underexposed
- Employ on-the-fly “what if” analysis to evaluate the impact of hypothetical trades on the firm’s exposures, risk positions and coverage ratio
- Predict the institution’s long-term collateral needs based on its current and hypothetical positions
About BNP Paribas Securities Services (www.securities.bnpparibas.com)
BNP Paribas Securities Services, a wholly owned subsidiary of the BNP Paribas Group, is a leading global custodian and securities services provider. Backed by the strength of the BNP Paribas Group, we provide multi-asset post-trade and asset servicing solutions for buy and sell-side market participants, corporates and issuers. With local expertise in 36 countries and a global reach covering 90+ markets, our network is one of the most extensive in the industry, enabling clients to maximise their investment opportunities worldwide.
AIA Group Limited and its subsidiaries (collectively “AIA” or the “Group”) comprise the largest independent publicly listed pan-Asian life insurance group. It has a presence in 18 markets in Asia-Pacific – wholly-owned branches and subsidiaries in Hong Kong SAR, Mainland China, Thailand, Singapore, Malaysia, Australia, Cambodia, Indonesia, Myanmar, the Philippines, South Korea, Taiwan (China), Vietnam, Brunei, Macau SAR, New Zealand, a 99 per cent subsidiary in Sri Lanka, and a 49 per cent joint venture in India.
The business that is now AIA was first established in Shanghai a century ago in 1919. It is a market leader in the Asia-Pacific region (ex-Japan) based on life insurance premiums and holds leading positions across the majority of its markets. It had total assets of US$284 billion as of 31 December 2019.
AIA meets the long-term savings and protection needs of individuals by offering a range of products and services including life insurance, accident and health insurance and savings plans. The Group also provides employee benefits, credit life and pension services to corporate clients. Through an extensive network of agents, partners and employees across Asia-Pacific, AIA serves the holders of more than 36 million individual policies and over 16 million participating members of group insurance schemes.
AIA Group Limited is listed on the Main Board of The Stock Exchange of Hong Kong Limited under the stock code “1299” with American Depositary Receipts (Level 1) traded on the over-the-counter market (ticker symbol: “AAGIY”).
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