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The Swiss Franc To The Australian Dollar Is The New Hot Carry Trade As Zurich Lures Reinsuers

|Includes: FXA, CurrencyShares Swiss Franc Trust ETF (FXF)

The Swiss Franc, FXF, to Australian Dollar, FXA, carry trade, is  the new hot currency trade, since Monday, June 28, 2010, as Carolyn Bandel of Bloomberg reports Zurich Lures Reinsurers Betting Solvency II Rules Will Drive Europe Demand.

Catlin, owner of the largest insurance unit at Lloyd’s of London, plans to form a wholly owned unit in Switzerland, the firm said yesterday. The number of reinsurers in Zurich has doubled to 31 since 2006, before the European Commission adopted the Solvency II proposal, data from New Reinsurance Co. show. The new directive is designed to align insurers’ risks with the capital they hold to ensure clients’ claims are covered.

“The thinking appears to be that it pays to be on the ground as European primaries are looking for new reinsurance carriers driven by Solvency II,” said Hamish Chalmers, a London-based analyst with Macquarie Group Ltd.

The planned regulation, which is due to come into effect by 2013, is likely to force insurers to raise the amount of capital they hold against liabilities. Some forms of reinsurance will be accepted as a potential alternative source of capital. Reinsurers also say they are choosing Zurich over other European locations in part because Switzerland has attractive tax rates. Catlin’s new unit will allow the reinsurer to benefit from “opportunities created as the result of the forthcoming Solvency II regulatory regime,” it said in a statement yesterday. The holding company will remain in Bermuda.

Hat tip to Elaine Meinel Supkis of Culture Of Life News for the Zurich report snips and highlighting.

The Yahoo Finance chart of the Swiss Franc, FXF, to Australian Dollar, FXA shows a 2.1% gain for the Swiss Franc and a 3.1% loss for the Australian Dollar over the last five days. The euro yen carry trade has been usurped in importance; the currency traders are effecting yet another global currency bloodless coup de etat. Click on image to enlarge

The chart of FXF to FXA broke out Tuesday June 29, 2010. Click on chart to enlarge.



Disclosure: I am invested in gold coins