The Office of the Superintendent of Financial Institutions has revised its Large Exposure Guideline for life insurers to reflect a number of comments provided by stakeholders, including the issue of mutual fund exposures where the returns of the mutual fund units or shares are passed through unaltered to the holders of insurance policies.
The updated guideline says that exposures to units of a mutual fund where the returns of the fund units are passed through unaltered (i.e., there is no guarantee of performance) to the holders of insurance policies (e.g., universal life insurance policies), only 25% of the book value of the exposure is included in the calculation of the exposure to the fund, provided certain criteria are met.
For other exposures to the mutual fund, 100% of the book value of the exposure must be included in the calculation of the exposure to the mutual fund.
To qualify for the lower exposure multiple, the following criteria must be met:
- the mutual fund is not sponsored, administered or marketed by the company;
- there are no restrictions or limitations on the redemption of the mutual fund units or shares by the company;
- the mutual fund does not have an exposure to any single counterparty in excess of 10% of the total market value of the mutual fund at the date of acquisition of the exposure to that counterparty;
- the company holds no more than 10% of the total market asset value of the mutual fund;
- the mutual fund can be independently valued on a daily basis; and
- the mutual fund has a broad and active secondary market.
Institutions are invited to provide comments regarding the revised draft guideline by July 30, through their industry associations.