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Scottish independence: turning up the heat; turning on the risk ?


Patrick Kelliher

Many divorces start off amicably until there is a disagreement over the dog, the CD collection or some other possession, at which point proceedings become increasingly acrimonious and detached from reason. Scotland is still mulling its divorce from the rest of the UK, but its partner has already claimed the dog, or in George Osborne's case, the pound sterling. It has brought the independence debate to a new level. The SNP appear to be struggling to respond, but some in the "yes" camp have suggested that if Scotland cant share the currency, then Scotland should refuse to pay its share of the UK's debt. To my mind, this is a marked escalation in rhetoric yet the markets are unmoved: there has been little change to either the FTSE100 or to UK gilt yields [1]. Perhaps the market believes Osborne's move has decisively removed the prospect of Scottish independence. Perhaps they judge political rhetoric - from both camps - to be just bluster. However, risk...

What next after property funds ?

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Patrick Kelliher

During the financial crisis from H2, 2007 – Q1, 2009, life insurers experienced a surge in property fund surrenders after experiencing strong inflows in the preceding years. In response most invoked deferral clauses, though there were issues to be addressed in terms of whether systems could cope with deferral (in many cases, system functionality for this contingency was not built); and whether deferral was consistent with TCF (arguably not deferring would not be fair on remaining investors in these funds).

Looking forward, there is a risk that non-property unit-linked funds could experience liquidity strains similar to that experienced by property funds. A particular area of concern would be funds investing in corporate bonds. During the financial crisis, some bonds such as ABSs become effectively illiquid as the market in these collapsed. Furthermore, following the financial crisis, and in response to higher capital requirements, market makers have cut inventories...

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