The FHLB financing agreements declared by American General Life Insurance Co. to American International Group Inc. increased from $604.8 million to more than $3.58 billion at the end of 2018, accounting for most of the increase. Several other companies reported FHLB financing agreements of more than $100 million as of December 31, 2018, after recording zero balances a year earlier, including: Voya Financial Inc. voya Retirement Insurance – Annuity Co., for $655 million; American Family Life Assurance Co. of Columbus (Aflac) of Aflac Inc., and AIG`s variable Annuity Life Insurance Co., $209 million. U.S. life insurers continued to record the bulk of the sector`s borrowing primarily through the issuance of financing agreements. Firefighting with Financing: FHLB Promotes Industry Liquidity, Returns This communication describes the new data on securities guaranteed by the Financing Agreement (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. 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. If the FHLB advance is considered a “debt” or a “financing agreement,” U.S. insurers must disclose identical information about FHLB`s business, including information about FHLB`s common shares (because they can only borrow if they hold FHLB shares), rights guaranteed to FHLB, advances from FHLB and advances to the FHLB. Disaster financing cannot be easily accessible to other insurers who lack the flexibility of a Class A financial power rating and a strong capitalization that CSAA Insurance Exchange holds due to credit issues and/or regulatory restrictions.