Insurers allowed to invest in SBL

MANILA, Philippines — The Insurance Commission (IC) is now allowing insurance firms to participate in securities borrowing and lending (SBL) transactions, subject to regulatory approval.

Insurance Commissioner Dennis Funa issued IC Circular Letter (CL) 2019-45, dated Sept. 4, providing the guidelines for the participation of insurance companies in SBL transactions.

It amends IC Circular Letter 2014-31, whose implementation was earlier deferred by the IC due to concerns from the Financial Stability Coordinating Council.

SBL refers to the lending of securities from a lender’s portfolio on a given date to a borrower’s portfolio to support the borrower’s trading activities. This is also referred to as securities lending transaction (SLT).

Under the new rules, insurance and professional reinsurance companies are now allowed act as a lender in SBL transactions, subject to the approval of the IC.

“For insurance and professional reinsurance company, securities lending may be conducted through direct lending, lending agent, lending pool system or other schemes subject to the evaluation and approval of the lnsurance Commission; provided that, the parties to a SBL transaction shall comply with the required documentation, valuation, collateral management, settlement, record keeping, reporting, accounting standard and other requirements as prescribed by the Insurance Commission,” the circular read.

According to the IC, life insurance companies are allowed to allocate only five percent of their total admitted assets, as per their latest annual statement, for SBL transactions.

For non-life insurance and professional reinsurance companies, the allowed investments shall not exceed 10 percent of their total net worth.

Investments in SBL transactions may be considered as reserve investments, the IC said.

The IC said the lending or borrowing period of SBL transaction shall not exceed two years from the date of execution of the SBL confirmation notice.

Securities listed in the Philippine Stock Exchange (PSE), Philippine Dealing Exchange, Bureau of the Treasury and the Bangko Sentral ng Pilipinas are eligible for insurance companies’ SBL transactions.

The IC said insurance and reinsurance companies may accept collateral in the form of cash denominated in peso; irrevocable and negotiable letters of credit issued by a commercial bank; bonds or other instruments issued by the Philippine government; bonds, debentures or other instruments of any solvent corporation; securities listed in the PSE; and any combination thereof or other forms of collateral that may be allowed by the IC.

Companies seeking approval of its investment in SBL transactions should submit to the IC a copy of their master securities lending agreement; board resolution authorizing the SBL transaction; copy of securities lending authorization agreement; a copy of the license of the lending agent, lending pool system or other intermediaries; and other documents as may be required by the IC.