Indian insurance companies are preparing to shift approximately $41 billion worth of trades from overnight index swaps (OIS) to bond forward contracts, in a move aimed at managing interest rate risks more effectively. The transition reflects growing concern over yield volatility and the need for better long-term hedging tools, especially as insurers manage large-duration liabilities.
Currently, insurers rely heavily on OIS to hedge their fixed-income exposures. However, bond forwards—though less liquid—offer a closer match to their investment strategies, particularly for long-tenor government securities. This shift is also being encouraged by evolving regulatory norms and global risk management practices.
Market participants believe the migration could significantly deepen India’s bond forward market and improve price discovery. At the same time, challenges remain around liquidity, standardization, and execution infrastructure.
The move underscores how insurers are recalibrating their portfolios and risk frameworks in response to a shifting macroeconomic and regulatory landscape, aiming for more precise asset-liability management.
