Funding Agreements Insurance

In the second half of the 2000s, U.S. life insurers accelerated their issuance of XFABN as a blue line in Figure 4. As with other short-term financing markets, such as commercial paper and asset-backed repo markets, the XFABN market collapsed in the summer of 2007, when institutional investors suddenly stopped expanding their XFABN. Under the terms of the contract, investors have received new securities – called spinoffs, which are displayed by the dotted red line in Figure 4 – that mature on a fixed date, usually about a year after the retraction notification. In a typical FABS structure, a life insurer sells a single financing contract to an EPS that funds the financing agreement by distributing smaller FABS parts to institutional investors. In addition, at least two types of FABS are designed for short-term investors, such as leading money market investment funds: Extendible Funding Agreement-backed Notes (XFABN) and Funding Agreement-backed commercial paper (FABCP). These securities have a much shorter term than the underlying financing agreement, which typically has a term of about ten years. XFABN often has an initial duration of 397 days, but each month gives investors the option to gradually extend the duration of their bonds by one month. Fabcp is a fixed-term contract of one week to six months.3 Depending on the offering, the „Mutual Of Omaha“ agreement allows termination and withdrawal by the issuer or investor for any reason, but the terms of the contract require that 30 to 90 days before the last day of the interest period be terminated by the issuer or investor. 8. The movement of life insurers to FHLB is in line with a wider transfer of financing from the parallel bank to the FHLB system.

See Acharya, Afonso and Kovner (2013). Return to the Text Funding Agreement Products can be offered worldwide and by many types of issuers. They generally do not require registration and often have a higher return than money funds. Some products may be linked to selling options that allow an investor to terminate the contract after a specified period. Not surprisingly, financing agreements are the most popular among those who wish to use products for capital preservation rather than growth in an asset portfolio. This note describes the new data on securities covered by a financing contract (FABS) that are provided under the Enhanced Financial Accounts (EFA) initiative. As described in Holmquist and Perozek (2016), the U.S. financial accounts report the total amount of FABS`s outstanding assets at a quarterly rate. This EFA project expands financial account data by providing daily data to different types of FABS, which vary depending on duration and integrated optionality.

The more detailed data presented in this EFA project provide a clearer picture of developments in this important financing market, including the start-up of a segment of the FABS market from the summer of 2007 (Foley-Fisher, Narajabad and Verani 2015). The project thus promotes the objectives of the EFA initiative – described in Gallin and Smith (2014) – in order to provide a more detailed and frequent picture of financial intermediation in the United States. What are securities guaranteed by a financing contract? A financing contract is a deposit contract sold by life insurance companies, which generally pays a guaranteed rate of return over a specified period of time. As the name suggests, these insurance contracts are similar to deposits because they do not contain mortality or morbidity quotas. Insurers make money by issuing these contracts and investing the product in relatively more profitable assets. Financing agreements have long been allocated directly to municipalities and institutional investors, but in recent years insurance companies have begun to create securitization companies (SPEs) to establish financing agreements and issue financing agreements on guaranteed securities (FABS).