American Association of State Compensation insurance Fund
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CopperPoint Mutual Insurance Company
Phone: (602) 631-2000
Address: 3030 North Third Street
Phoenix, AZ   85012

State Compensation Insurance Fund
Address: 333 Bush Street
Suite 800
San Francisco, CA   94104

Pinnacol Assurance
Phone: (303) 361-4000
Address: 7501 East Lowry Boulevard
Suite 800
Denver, CO   80230-7006

Hawaii Employers' Mutual Insurance Co. Inc.
Phone: (808) 524-3642
Address: 1100 Alakea Street
Suite 1400
Honolulu, HI   96813

Idaho State Insurance Fund
Phone: (208) 332-2100
Address: 1215 West State Street
P.O. Box 83720
Boise, ID   83720-0044

Kentucky Employers Mutual Insurance
Phone: (859) 425-7800
Address: 250 West Main Street Suite 900
P.O. Box 83720
Lexington, KY   40507-1724

Louisiana Workers' Compensation Corporation
Phone: (225) 924-7788
Address: 2237 South Acadian Thruway
P.O. Box 83720
Baton Rouge, LA   70808

Maine Employers Mutual Insurance Company (MEMIC)
Phone: (207) 791-3300
Address: 261 Commercial Street
P.O. Box 11409
Portland, ME   04104

Chesapeake Employers’ Insurance Company
Phone: (410) 494-2000
Address: 8722 Loch Raven Boulevard
P.O. Box 11409
Towson, MD   21286-2235

SFM Mutual Insurance Company
Phone: (952) 838-4200
Address: 3500 American Boulevard West Suite 700
P.O. Box 11409
Bloomington, MN   55431-4434

Missouri Employers Mutual Insurance
Phone: (800) 442-0590
Address: 101 N Keene St
P.O. Box 11409
Columbia, MO   65201

Montana State Fund
Phone: (406) 495-5015
Address: 855 Front Street
P.O. Box 4759
Helena, MT   59604-4759

New Mexico Mutual Group
Phone: (505) 345-7260
Address: 3900 Singer Boulevard NE
P.O. Box 4759
Albuquerque, NM   87109

New York State Insurance Fund
Phone: (212) 312-7001
Address: 199 Church Street
P.O. Box 4759
New York, NY   10007

Workforce Safety and Insurance
Phone: (701) 328-3800
Address: 1600 East Century Avenue Suite 1
P.O. Box 4759
Bismarck, ND   58506-5585

Ohio Bureau of Workers Compensation
Phone: (800) 644-6292
Address: 30 West Spring Street
P.O. Box 4759
Columbus, OH   43215-2256

CompSource Mutual Insurance Company
Phone: (405) 232-7663
Address: 1901 North Walnut Ave.
P.O. Box 53505
Oklahoma City, OK   73152-3505

State Accident Insurance Fund (SAIF)
Phone: (503) 373-8000
Address: 400 High Street SE
P.O. Box 53505
Salem, OR   97312-1000

Pennsylvania State Workers Insurance Fund
Phone: (570) 963-4635
Address: 100 Lackawanna Avenue
P.O. Box 5100
Scranton, PA   18505-5100

Beacon Mutual Insurance Company
Phone: (401) 825-2667
Address: One Beacon Centre
P.O. Box 5100
Warwick, RI   02886-1378

South Carolina State Accident Fund
Phone: (803) 896-5800
Address: P.O. Box 102100
P.O. Box 5100
Columbia, SC   29221-5000

Texas Mutual Insurance Company
Phone: (800) 859-5995
Address: 6210 East Highway 290
P.O. Box 5100
Austin, TX   78723-1098

Workers Compensation Fund
Phone: (800) 446-2667
Address: 100 West Towne Ridge Parkway
P.O. Box 2227
Sandy, UT   84070

Washington Department of Labor and Industries
Phone: (360) 902-5800
Address: P.O. Box 44001
P.O. Box 2227
Olympia, WA   98504-4001

Wyoming Division of Workers Safety & Compensation
Phone: (307) 777-7159
Address: Cheyenne Business Center
1510 East Pershing Boulevard
Cheyenne, WY   82002

Workers Compensation Board - Alberta
Phone: (780) 498-3999
Address: 9925-107 Street
P.O. Box 2415
Edmonton, AB   T5J 2S5

Workers Compensation Board of British Columbia (WORKSAFEBC)
Phone: (604) 273-2266
Address: P.O. Box 5350 Station Terminal
P.O. Box 2415
Vancouver, BC   V6B 5L5

Manitoba Workers Compensation Board
Phone: (204) 954-4321
Address: 333 Broadway
P.O. Box 2415
Winnipeg, MB   R3C 4W3

Phone: (506) 632-2200
Address: 1 Portland Street
P.O. Box 160
Saint John, NB   E2L 3X9

Workers Compensation Board of Nova Scotia
Phone: (902) 491-8999
Address: 5668 South Street
P.O. Box 1150
Halifax, NS   B3J 2Y2

Prince Edward Island Workers Compensation Board
Phone: (902) 368-5680
Address: 14 Weymouth Street
P.O. Box 1150
Charlottetown, PE   C1A 7L7

Saskatchewan Workers Compensation Board
Phone: (306) 787-4370
Address: 200 - 1881 Scarth Street
P.O. Box 1150
Regina, SK   S4P 4L1

Puerto Rico State Insurance Fund Corporation
Phone: (787) 793-5959
Address: G.P.O. Box 365028
P.O. Box 1150
San Juan, PR   00936-5028
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AASCIF Newsletter

Insurance Liquidity Strategies in the Wake of Money Market Reforms

By Deutsche Asset Management

*Deutsche Asset Management is the sponsor of the Finance and Investment Track at the 2018 AASCIF Annual Conference.

Statutory data reflects that insurance companies moved large amounts of their cash investments from prime to government money market mutual funds in response to the October 2016 Securities and Exchange Commission rules requiring prime funds to have floating net asset values (NAVs), more stringent liquidity standards, and the possibility of liquidity fees and redemption gates. Meanwhile the National Association of Insurance Commissioners (NAIC) removed its Class 1 Money Market Mutual Fund category and stopped publishing the list of funds that qualify for it since the funds in that category were required to have a fixed NAV. To that end, insurance companies have been keeping a close eye on the performance of floating NAV prime MMFs to determine whether to reallocate cash to them or remain invested in government funds and other short-term instruments.

The key components of the SEC’s new MMF reforms center around their NAVs and their liquidity levels. The SEC also tightened liquidity requirements while also making prime funds subject to redemption gates and liquidity fees. The NAIC’s response to the reforms somewhat simplified things for insurers. It continues to have the government funds category, with a zero risk-based capital requirement. However, it replaced the NAIC Class 1 category with a simple “other” category. Any MMF that meets the rule 2a-7 definition of a MMF, and is not a government fund, qualifies for the “other” category without needed a review by the NAIC’s Securities Valuation Office (SVO) and will receive the same capital charge as a NAIC1 bond fund.

The regulatory changes affected how many insurers used MMFs. The below chart shows how life, property & casualty, and health insurance companies all increased their use of government funds with fixed NAVs—switching assets out of prime funds—when the SEC rules came into effect. For 2014 and 2015, the insurers had between a 28 percent and 44 percent allocation to government or exempt funds. At year-end 2016, after the rule changed, those numbers increased dramatically, with life companies allocating up to 84 percent of their money fund assets to government funds, P&C companies allocating 71 percent, and health insurers allocating 91 percent.

Percent of money market assets invested in government funds

A year into the post-reform era, some positive trends emerged in the MMF environment. The figure below indicates that over the course of four federal rate hikes, the spread between the government and prime funds increased from one to three basis points in 2015. The spread widened the following year to about 10 to 12 basis points, with prime funds yielding around 25 basis points and government funds averaging anywhere between 13 and 15 basis points. With the rate hikes in 2017, the spread averaged around 30 basis points, with expectations that they would widen further. At the end of October 2017, for example, prime yields were around 101 basis points and government yields were around 74.

U.S. money market industry evolution

We expect to see a shift out of government funds back to prime, a move that has already begun; government funds lost about $48 billion since the end of 2016, while prime funds gained about $70 billion. In addition to a shift back into prime MMFs, there is growth activity in separately managed accounts and to a smaller degree, ultra-short bond funds and ETFs, as well as some direct investing in other instruments. As the economy is forecast to continue to strengthen and the Federal Reserve expected tightening, we anticipate the spread between prime and government funds will widen further and investors will seek alternative solutions for more yield.

Post-reform considerations
Conditions to resume investment in prime funds

Options considered to complement investment selection

Source: 2017 AFP Liquidity Survey; All Corporates.

This information can be encouraging news for insurance company cash investment strategies, since low NAV volatility is typically key to successful cash management, forecasting, and accounting. Since NAV volatility has been low and spreads have been widening, in our opinion, prime funds could once again become significant investment tools for insurers.


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