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The COVID-19 Pandemic: Opportunities and Implications for Captive Insurance

The COVID-19 Pandemic: Opportunities and Implications for Captive Insurance

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The COVID-19 Pandemic: Opportunities and Implications for Captive Insurance explores the challenges presented by today's business and economic upheaval, as well as the hardening insurance market, and what it means for the captive insurance industry.

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Captive Insurers Need To Understand New Money Market Rules

Dollar Sheet
October 05, 2016

The U.S. Securities and Exchange Commission (SEC) recently instituted new regulations governing institutional money market accounts. The historical context for this change dates back to the financial crisis of 2007–2008. As a result of market volatility, the Reserve Primary Fund "broke the buck," meaning its net asset value (NAV) dropped below $1 per share. This led to a run on institutional money market funds as investors looked to redeem their shares because of concerns their fund could follow what had occurred at the Reserve Primary Fund. This, in turn, led the U.S. Department of the Treasury to create a temporary guarantee program for money market funds.

As a result, both the Treasury and the SEC expressed unease with the fixed NAV of $1 for institutional money market funds, because they felt it could contribute to market instability. The new rules require all institutional money market funds to move from a fixed NAV of $1 to a floating NAV, priced on a daily basis. In addition, the rules allow the fund companies, during times of extreme volatility in the market, to suspend redemptions from the funds and/or impose redemption fees on investors wishing to do so.

Captives using money market funds should speak with their investment advisers and accountants to make sure they fully understand the impact of these new rules. In addition, there are certain exemptions to the rules that could play a role in what funds a captive may choose to own. The two key takeaways are money market funds are no longer similar to cash since the NAV can change and in times of high market volatility it may be difficult to liquidate money market funds to meet cash needs of the captive.


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