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Market Impact Special

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When Munich Re's Ergo primary insurance subsidiary bought EUR12.5 billion of swaptions in the first half of 2005, it potentially dwarfed previous similar transactions in the UK and Denmark. Although the transaction reduced eco nomic capital for the life companies by about 8%, it was not prompted by regulators alarmed by declines in solvency.

According to Jan Willing, a senior consultant at Munich Re's integrated risk management (IRM) division, "What is interesting about our transaction is that it

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