The Insurance Commission (IC) issued guidelines providing for the rules and limitations on securities borrowing and lending (SBL) transactions by insurance companies and professional reinsurers.
In a statement on Monday, the IC announced that Insurance Commissioner Dennis B. Funa signed Circular Letter 2019-45 in an effort to allow insurers to participate in the local capital market.
To qualify as an admitted asset, SBL transactions of an insurance company must be approved by the IC, which shall not exceed 5 percent of the total admitted assets of a life insurance company or 10 percent of the net worth of a nonlife insurance or professional reinsurance company.
The IC had previously issued rules on securities borrowing and lending transactions in 2014 but was later on deferred due to the issues raised on repurchase agreements, including SBLs.
“With the issuance of this circular, insurance companies are now given additional investment channel to diversify their investment portfolio and to actively participate in capital market development,” Funa said.
With the new guidelines in place, securities that will be the subject of an SBL transaction shall be limited to securities listed in the Philippine Stock Exchange, or those issued by the Bureau of the Treasury or the Bangko Sentral ng Pilipinas, and the lending period shall not exceed two years from the date of the execution of the SBL Confirmation Notice. Also, insurers and professional reinsurers are required documentation, valuation, collateral management, record keeping and reporting requirements.
For collateral management, the new set of guidelines will also limit the following: acceptable collaterals for SBL transactions to peso denominated cash; irrevocable and negotiable letters of credit issued by a commercial bank; bonds and other instruments of indebtedness issued by the government; bonds, debentures or other instruments of indebtedness of any solvent corporation or institution existing under Philippine laws; securities listed in the PSE and/or any other combination thereof.
Funa said that insurance companies may take advantage of engaging in SBL transactions to gain additional returns on their investment portfolios by loaning out securities that are not actively traded.
“In view of the next tranche in the increase of minimum net worth requirement for insurance companies as prescribed under the law, [insurers] may increase their yield by engaging in SBL transactions,” Funa said.
