Florida Workers’ Compensation Joint Underwriting Association (FWCJUA) Investment Committee Mulls New Investment Policy Proposal

 

The Florida Workers’ Compensation Joint Underwriting Association (“FWCJUA”) Investment Committee (“Committee”) is considering a revised policy for the FWCJUA’s investment portfolio that would allow the inclusion of BBB-rated securities, asset-backed securities such as credit card receivables, and mortgage-backed securities.

Prime Advisors, the FWCJUA’s new investment manager, is also recommending that the FWCJUA lower the minimum rating for revenue-backed municipal bonds from AA to A in an effort to lessen the risk associated with unfunded pensions, other post-employee benefits, liabilities and budget deficits.

Committee members discussed the proposed changes for more than an hour on July 6, 2012, but took no action because they wanted to study the proposed revisions and the possible ramifications at greater length.

Jason Gingerich of Prime Advisors outlined the proposed changes, fielded questions and then agreed to return at a future date to continue discussion on the matter.  No date was set for the continued discussion.

Mr. Gingerich explained that the addition of BBB-rated securities to the portfolio would increase portfolio diversification, inasmuch as BBB-rated securities make up one-third of the overall corporate bond universe.  If the FWCJUA does not invest in BBB-rated securities, it will have to invest in the sometimes-riskier “A” credits for diversification.  BBB-rated securities are usually included in the “investment grade” category in the investment industry, Mr. Gingerich noted.

Other significant investment policy changes include the addition of asset-backed securities such as AAA-rated credit card receivables as an approved asset class.  A maximum investment of 10 percent of the portfolio is suggested.   Additionally, up to 15 percent of the portfolio could be composed of mortgage-backed securities backed by Fannie Mae, Freddie Mac or Ginnie Mae if they were added, the Prime Advisors representative said.  Such government-backed securities typically have better criteria of loans underwriting the securities, thereby producing less risk on the market, Mr. Gingerich said.

If the changes are approved, compliance systems would be updated to reflect the new permitted assets and limitations.  These systems generate a warning before a trade can be executed if that trade would result with the portfolio being out of compliance with accepted guidelines, Mr. Gingerich stated.

Committee member Raquel “Rocky” Rodriguez voiced concern about placing 15 percent of the FWCJUA’s investment portfolio in mortgage-backed securities.

It was explained that the 15 percent was a maximum number and one not likely to be reached.

Other Committee members said the proposed policy changes were far-reaching and merited further study.  Committee members agreed to reconvene at a later date to be announced for further discussion.

In other business, the Committee:

• Agreed to continue holding the following bonds: HP Enterprises; Citigroup, Inc.; BellSouth Corp.; Amgen and Coca-Cola HBC as recommended by Prime Advisors
• Agreed to sell Western Union bonds, as recommended by Prime Advisors

With no other business to conduct, the meeting was adjourned.

The meeting materials are attached for review.

 

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