IC allows insurance firms to join SBL transactions

INSURANCE and reinsurance companies can now diversify their investment portfolio after the industry regulator okayed their participation in securities borrowing and lending (SBL) transactions.

Insurance Commissioner Dennis B. Funa said firms may gain additional returns on their investment portfolios through loans in 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, insurance companies may increase their yield by engaging in SBL transactions,” Mr. Funa was quoted in the statement.

Dated Sept. 4, Circular Letter No. 2019-45 contains guidelines on the transactions.

It said firms’ investments in SBL transactions should not be more than 5% of the total admitted assets for life insurance companies.

Meanwhile, for non-life and reinsurance firms, the investments should not go beyond 10% of their net worth.

Lending or the borrowing period will also have a maximum cap of two years from the date of execution of SBL confirmation notice.

SBL, as defined in the circular, refers to the lending of securities from the lender’s portfolio to support the borrower’s trading activities and will be returned on a specific date.

Under the circular, among the eligible collaterals that firms can accept in their SBL transactions are peso-denominated cash, bonds or other instruments issued by the government and its agencies including the central bank, as well as those issued by corporations or institutions and securities listed in the Philippine Stock Exchange.

Firms will also have to comply with documentation, valuation, collateral management, record-keeping and reporting requirements for the transactions.

“With the issuance of this Circular Letter, insurance companies are now given additional investment channel to diversify their investment portfolio and to actively participate in capital market development,” Mr. Funa added.

In 2014, the IC issued rules on SBL transactions but the implementation was later deferred due to issues raised on repurchase agreements. — BML