Whether this is consistent with the MAS's definition of "fully funded"--that the assets held in trust by the SPRV for the ceding insurer are not less than the potential liabilities of the SPRV under all reasonably foreseeable scenarios--seemingly would have to be addressed with the MAS on a case-by-case basis.
Thus, we expect the actuary to exercise professional judgment to ensure that he has considered all reasonably foreseeable scenarios in his assessment of the funding status of the SPRV.
They afford the SPRV broad authority to enter into transactions and contractual arrangements necessary to carry out a securitization.
The regulations further provide for protection against bankruptcy by requiring that holders of its debt securities not initiate or participate in "winding-up" (bankruptcy) proceedings against the SPRV until the debt securities are discharged.
To address this concern, the MAS stated in its response to feedback, "we would be more comfortable if the SPRV is owned, for instance, by a charitable trust.
Instead, the MAS will decide on a case-by-case basis whether the structure of a particular SPRV will qualify for bankruptcy-remoteness.
The capital level determined by the rating agencies to support a rating on the debt securities is further subject to the maintenance of a minimum solvency capital by the SPRV set forth by its regulator.
The no-risk-of-loss approach together with the rating-agency-type methodology employed by the financial guarantor generally tends to impose capital maintenance level and operational covenants for the SPRV in excess of those required by the rating agencies as well as the regulator.
This restriction on the servicing of the debt securities results in a higher capital contribution to the SPRV to support a rating on the debt securities.
Alternatively, companies should explore establishing the SPRV in a jurisdiction where such treatment of the SPRV would be available, resulting in a less burdensome capital requirement.
In a Triple-X securitization transaction, a draw under the funding arrangement for the redundant statutory reserve (through liquid assets or LOC) is made only after the assets representing the economic statutory reserve of the SPRV are exhausted.
Two basic forms of Triple-X securitization structures use a domestic SPRV: a surplus-note-based structure, wherein the SPRV issues surplus notes that are used then as collateral by a special purpose trust for the issuance of highly rated notes based on the guarantee of payments on the notes by a highly rated financial guarantor; and an equity-interest-based structure, wherein the SPRV issues equity interests that are used then as collateral by a special-purpose limited-liability company (owned by the company) for the issuance of highly rated notes based on the guarantee of payments on the notes by a highly rated financial guarantor.