The Markets April 27, 2012

Regulations Changing DB Use of OTC Derivatives

Over-the-counter (OTC) derivatives, such as interest rate swaps, have become standard tools for defined benefit pension plans.
Reported by

These instruments allow pension plans to reduce risk and manage portfolios more efficiently. However, Towers Watson notes in a Perspectives paper, the financial crisis and subsequent changes in regulation mean it is likely that the way pension plans will use such instruments will change.  

Towers Watson explains that regulators have been looking at ways to improve the financial stability and security of the OTC derivatives market by promoting exchange trading and introducing “central counterparty clearing.” The aim of central counterparty clearing is to better manage the systemic, credit, operational and other risks associated with OTC derivatives. In other words, regulators want derivatives to be collateralized with a central counterparty, such as a clearinghouse, that is perceived to be less risky than bank counterparties due to the central counterparty’s more focused business activities and risk management framework. (Both the bank and the pension plan would face a third party rather than each other.)   

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However, not all OTC derivatives will be subject to central clearing in the short term. For example, some types of interest rate swaps, swaptions and longevity swaps are not being initially considered for central clearing.  

While pension plans cannot move all their interest rate derivatives to central counterparty clearing today, they should understand the impacts changes in regulation are bringing to market practice, according to Towers Watson.  

 

(Cont...)

Pension plans should assume the following: 

  • They will move to a “cash as eligible collateral” world (and maybe short-dated government debt, too). 
  • Bank counterparties’ credit quality has weakened and could weaken further. This makes it important to take counterparty diversification, a counterparty bank’s credit quality and the package of terms a bank will offer into account when assessing with whom to transact. 
  • Either regulation or economic incentives will mean that both existing and new interest rate derivative exposures will eventually be pushed toward central counterparty clearing. 
  • It will become more common for other instruments to be used to gain leverage in order to invest more efficiently — for example, equity derivatives. 

Markets continue to be volatile, which means that effective risk management through the use of derivatives is as important as ever, the paper concludes. The operational uncertainty created by market and regulatory changes is not a reason to hold off from managing economic risks, but is an important implementation consideration.  

The full paper can be downloaded at http://www.towerswatson.com/united-states/research/6949.

 

Deals & People April 27, 2012

NFP Chair and CEO Bibliowicz Announces Plans to Step Down

National Financial Partners Corp. (NFP), a provider of benefits, insurance and wealth management services, said Friday it had begun implementing a management succession plan. 
Reported by

Chairman and Chief Executive Jessica Bibliowicz informed the company’s board of directors she is stepping down as president immediately and intends to step down as CEO in 2013.

Bibliowicz said she plans to end her chairmanship at the end of the first quarter of 2012. The board asked her to become the nonexecutive chairman at that time.

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The firm’s chief operating officer since 2008, Douglas W. Hammond, was named president effective immediately. He will continue to serve as COO and is expected to become CEO in April 2013.

Bibliowicz has served as NFP’s president and CEO since joining the company in April 1999.  She has also served as a director since June 1999 and as chairman since June 2003. 

“We have accomplished a great deal at NFP over the past 13 years. With a strong team leading our core businesses, a clear strategy and sound financial position, NFP is well positioned for continued growth,” Bibliowicz  said. “Now is the right time for us to begin the implementation of a smooth year-long leadership transition.”


 

 

(Cont’d)

Bibliowicz joined NFP in April 1999 as the firm’s president and CEO. She has been chairman of the board of directors since June 2003. Before joining NFP, she served as president of John A. Levin & Co., a registered investment adviser, and as executive vice president and head of Smith Barney Mutual Funds. Since May 2006, Bibliowicz served as a director of The Asia Pacific Fund Inc.

Bibliowicz is also a member of the Board of Overseers of Weill Cornell Medical Center, serves on the boards of directors of Riverdale Country School and John Jay College Foundation, as well as the board of trustees of Cornell University.

Hammond was NFP's executive vice president and general counsel from 2004 to 2008, and NFP's executive vice president and deputy general counsel from 2002 to 2004. Before joining NFP in 1999, he was an attorney with the law firm now known as Dewey & LeBoeuf LLP, where he specialized in corporate insurance and regulatory matters, and represented NFP's capital sponsor before and during the formation of the company. He also held various business and legal positions in the financial institutions division of Gulf Insurance Group Inc., a specialty lines insurance company. 

Hammond serves on the Advisory Board of Trustees of the Dolan School of Business of Fairfield University.  He received a B.A. from Fairfield University and a J.D. from St. John's University School of Law.

 

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