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15 October 2013

Risk.net: Credit Suisse extends ICPPI hedging platform


Credit Suisse is partnering with SunGard to offer insurers a package for administering individualised constant proportion portfolio insurance (ICPPI) products.

SunGard will provide a new administration and trading service to compliment Credit Suisse's existing ICPPI platform. The service aims to minimise the data burden on insurers seeking to launch products using the ICPPI concept.

ICPPI structures have become popular in Germany and are gaining traction in Italy and other European countries. Products using the structure allow clients to lock in a maturity guarantee and participate in the growth of selected funds.

The individual nature of the product gives policyholders discretion over contract duration, risk appetite, guarantee level and participation level. Though attractive to customers, the IT resources and administration infrastructure needed to process and communicate these individual preferences to fund managers mean some insurers are unable to offer them.

The SunGard service will be rolled into Credit Suisse's existing platform and offered to insurers as a single, comprehensive ICPPI solution.

Mounir Elarchi, co-head of the fund-linked products business at Credit Suisse in London, says: "With this platform we are able to provide the full package – not only capital protection but also help processing trading orders, rebalancing between the risky and riskless assets in the fund, administering client accounts and providing account valuations".

The platform has also been tailored to dodge the risk that accounts become ‘cash locked'. This occurs when markets dip to such an extent that the fund manager has to shift all the client's assets into risk-free instruments to meet the maturity guarantee, thus preventing the client from participating in future growth if the product only admits a single premium.

"With ICPPI, insurance companies only have to manage the guarantees related to the constraints imposed by individual clients, and not by every participant who is in the scheme. That in itself reduces the strain you are putting into the level of guarantee", says Elarchi.

"In addition, through the ICPPI platform if an account becomes cash-locked, it is easier for insurance companies to reach out to a particular investor and discuss how to restructure that account, by injecting more premium, lowering the level of guarantee, or increasing the multiplier. So it gives investors and insurance companies more flexibility to deal with cash-lock situations as they arise", he adds.

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