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NAIC Task Force Exposes Working Capital Finance Note Proposal

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The Valuation of Securities Task Force has agreed to expose a staff proposal that could let insurers invest assets in working capital finance note programs.

The task force, an arm of the National Association of Insurance Commissioners (NAIC), Kansas City, made the decision Sunday in Austin, Texas, at the NAIC’s spring meeting.

Task force members decided to give members of the public 45 days to comment on the proposal, and they also decided to discuss the proposal with NAIC panels that look at issues such as statutory accounting, reporting and blanks.

Insurers have been asking the NAIC about working capital finance note program investments because note marketers say the programs can give insurers relatively high investment returns in exchange for risk levels that are comparable to the risk levels insurers would face if they invested in the program sponsors’ short-term corporate bonds.

Large companies sponsor the programs to help vendors cope with the gap between when the company acknowledges that it must pay an invoice and when it actually pays the invoice.

The large company gets more control over when it sends out payments, and vendors get quick access to cash, task force staff members say in a document posted on the task force section of the NAIC website.

The investor in the program notes faces default risk and billing problem risk, staff members say.

Banks once dominated the sector, but insurers now have a chance to get into it because of banks’ efforts to reduce the size of their balance sheets, note marketers say.

Task force action on the matter could determine investments in the working capital note programs are adjusted for risk in insurer risk-based capital calculations and other calculations.

In related news, the task force has adopted a proposal to create a filing exemption for structured securities guaranteed by the Federal Deposit Insurance Corp. (FDIC)

The FDIC has been asking insurers to invest in notes backed by pools of assets that the FDIC has formed using mortgage-backed securities and other assets from failed backs. The FDIC has promised to make up any shortfalls in interest and principal payments that affect the note holders.

Some insurance investment experts had suggested that regulators might want to treat FDIC-backed assets differently from “government-backed” assets, because of questions about whether the FDIC really has the legal authority to draw on the full faith and credit of the federal government.

Other Valuation of Securities Task Force coverage from National Underwriter Life & Health:


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