Insurers with large liability-hedging programmes should be thinking through the implications of gilt and swap yield movements in the event of a Yes vote for Scottish independence, actuaries Towers Watson warned.

In a note published today, the firm said that the main short-term investment concerns for insurers were exchange rates, gilt yields and UK asset volatility.
In the longer-term, there would be additional considerations, particularly for Scottish-based insurers, the note said. Adding that a significant proportion of the Scottish-based insures' liabilities are likely to be with policyholders in rUK.
'The result of the Scottish referendum will be significant for UK insures, headquartered in both Scotland and rUK; and also for other multi-national insurers if present in the UK,' the note stated.
'It is particularly pertinent to life insurers given the long-dated nature of their liabilities as any prolonged or systemic impact to exchanges rates and yields will be amplified.'
In terms of regulation, it would not be unreasonable to expect an independent Scotland to have a regime that is aligned with Solvency II regardless of whether it was part of the European Union or not, the noted stated.
Towers Watson said the key consideration for insurers was the impact on currency hedging strategies. The note stated that any weakening of the Sterling would be material in terms of collateral calls.
Keith Goodby, UK co-head of insurance investment advisory at Towers Watson, added that it was not clear which effect would dominate in the short-term.
'But, again insurers with large liability-hedging programmes could usefully think through the implications of a "Yes" vote for large gilts and swap yield moves either way, collateral quality, and counterparty risk to Scottish banks directly or through liquidity management vehicles,' he said.
The firm has recommended that insurers review their collateral arrangements to ensure they have sufficient liquidity and capital to be able to maintain their foreign exchange hedging positions.
Towers Watson also suggested that insurers examine their available liquidity in the event of a possible 5%, 10% or 15% fall in Sterling over a few days.