The Best’s Special Report, titled, “Money Market Reforms—Overall Insurance Industry Impact Expected to be Minimal,” states that the new rules require a floating net asset value (NAV) for institutional prime money market funds, which allows the daily share prices of these funds to fluctuate along with the changes in the market-based value of fund assets. In addition, the new rules provide the boards of non-government money market funds new tools to address runs in the form of liquidity fees and redemptions gates, which can be used in conjunction during times of duress.
With a floating NAV, institutional prime money market funds (including institutional municipal money market funds) are required to value their portfolio securities using market-based factors and sell and redeem shares based on a floating NAV. These funds no longer will be allowed to use the special pricing and valuation conventions that currently permit them to maintain a constant share price of
A further change stemming from the new rules is the ability of fund issuers to apply a liquidity fee against redemption proceeds, which would be retained by the fund. Such fees are intended to be a disincentive for shareholders to redeem shares of a fund in distress, and also to help bolster the liquidity levels in a fund by infusing the fund with cash withheld from redemption proceeds.
According to the report, the insurance industry’s exposure to Class 1 Money Market Funds, which contain a mix of government and non-government funds and will likely be affected by the new rules, has declined 11.7% to
To access a copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=254518.
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