From the investor`s point of view, the benefit of this transaction corresponds to the interest they would otherwise get into a traditional savings account. This type of transaction is essentially a cascading version of pension transactions between banks, although these wholesale agreements generally have a minimum unit value of USD 1 million and are often extended to short periods of time, such as. B overnight. In July 2011 and January 2012, the Naic Capital Markets Bureau published special reports on the exposure of the U.S. insurance industry to securities lending and pension (Repos) transactions. The reports contained in-depth definitions, analyses and discussions on the above investment practices. They discussed not only the commitment of the U.S. insurance industry, but also how the industry handles these types of investments in accounting, reporting and disclosure. In order not to repeat our previous studies, this report proposes a brief update of the definitions, accompanied by an update of the commitment of the U.S. insurance industry at the end of 2013. In addition, the report examines recent changes in deposit accounting and current regulatory trends in the repo market.
With respect to securities lending, it is used to temporarily obtain the guarantee for other purposes, for example. B for short position hedging or for use in complex financial structures. Securities are generally borrowed for a royalty, and securities borrowing transactions are subject to other types of legal agreements than deposits. A reverse repurchase agreement (RRP) is an act of buying securities with the intention of returning the same assets profitably in the future – to resell. This lawsuit is the opposite of the medal to the buyout contract. For the party that sells the guarantee with the agreement to buy it back, it is a buy-back contract. For the party that buys the guarantee and agrees to resell it, it is a reverse buyback contract. The reverse repo is the final step in the repurchase agreement for the conclusion of the contract. At the end of 2013, reinvested security from securities lending operations amounted to $61.6 billion, and there were approximately $80 billion in BACV dollars related to securities lent to counterparties (estimates of some $57 billion to $58 billion, which were actually allocated on the basis of guarantee requirements). In comparison, deposits of 27.2 billion BACV DOLLARS at the end of 2013 were a smaller amount of financing transactions in the sector`s securities. While market risk is inherent in both securities lending and rest (i.e., there is a risk of loss of market value for securities that end as collateral), the provisions that require counterparties to make “whole” any defaults of overseiture are these concerns.
As the data show, the majority of securities sold or purchased in such transactions consist mainly of U.S. Treasuries or government-related securities; As a result, credit risk is minimized by the high credit quality of these investments. As an additional lull, these transactions are short-term agreements, which often expire overnight. Insurance companies are generally subject to deposits to raise short-term funds.