FSC clarifies rule changes on US agency MBS
The FSC is patching up a loophole on insurersÆ exposure to Fannie, Freddie and Ginnie bonds and mortgage-backed securities. The move is aimed at enhancing risk controls on the island.
The Insurance Bureau at the Financial Supervisory Commission in Taipei announced revised rules on how insurance companies can treat investments in mortgage-backed securities (MBS). The FSC says in improving the monitoring and control of risk management in the industry, it will revise previous gaps left under Article Nine of its offshore investment regulations.
Where previously there was no limit to investments in MBS issued by US federal housing loan agencies, namely Fannie Mae, Freddie Mac and Ginnie Mae, insurers will now be given a maximum ceiling of 50% of their offshore investment limit to such products by the three institutions. Maximum exposure to MBS and collateralised issues by any of the individual agencies will be set at 25%.
Thomas Chang, director at the Insurance Bureau of the FSC in Taipei, explains this will patch up a previous loophole in the regulation, which had led to an example of over-concentration in investments to the MBS by a local insurer. Over the long run, the revision should encourage further asset diversification and risk monitoring.
Furthermore, the FSC says a previous limitation on investments into these MBS or collateralised issues to a credit rating of A-minus or a total score of 680 or above will no longer apply. Chang adds this is a response to insurers who have previously pointed out that not all issues by Fannie, Freddie or Ginnie come with credit ratings. Also, because the explicit backing of the United States government behind these issues, a credit rating is not necessary for determining the quality of these issues.
Chang notes, the Insurance BureauÆs current revision is separate from previous rule changes on asset classification under fair value accounting by the FSC on October 16.
Where previously there was no limit to investments in MBS issued by US federal housing loan agencies, namely Fannie Mae, Freddie Mac and Ginnie Mae, insurers will now be given a maximum ceiling of 50% of their offshore investment limit to such products by the three institutions. Maximum exposure to MBS and collateralised issues by any of the individual agencies will be set at 25%.
Thomas Chang, director at the Insurance Bureau of the FSC in Taipei, explains this will patch up a previous loophole in the regulation, which had led to an example of over-concentration in investments to the MBS by a local insurer. Over the long run, the revision should encourage further asset diversification and risk monitoring.
Furthermore, the FSC says a previous limitation on investments into these MBS or collateralised issues to a credit rating of A-minus or a total score of 680 or above will no longer apply. Chang adds this is a response to insurers who have previously pointed out that not all issues by Fannie, Freddie or Ginnie come with credit ratings. Also, because the explicit backing of the United States government behind these issues, a credit rating is not necessary for determining the quality of these issues.
Chang notes, the Insurance BureauÆs current revision is separate from previous rule changes on asset classification under fair value accounting by the FSC on October 16.
¬ Haymarket Media Limited. All rights reserved.