April 17, 2014

The Globe ran a piece on an upcoming insurance pow-wow in Toronto:

“The irony of the way insurance works, as opposed to the way banking works, is that it’s not always clear that capital is the relevant solution,” he said. “It’s often not, because insurance companies get into trouble in different ways.”

For example, insurance companies wouldn’t experience a ‘run’ on deposits, Mr. McGavick said, when reserves may not be able to cover mass customer withdrawals in the same way a bank would.

This seems like an odd remark to me, because while bank runs may be rooted in capital problems, they are made possible by liquidity problems – this is the old illiquid vs. insolvent distinction that I frequently mentioned during the Credit Crunch and which is well illustrated by the Panic of 1907.

Anyway, the Geneva Association produced an analysis titled Variable Annuities — An Analysis of Financial Stability, which references (among other things):

Key Financial Stability Issues in Insurance, released in July 2010, comprises analytical work carried out on specific issues that had been raised by regulatory and supervisory counterparts in areas such as investment management, liquidity management, limits of insurability, crisis resolution mechanisms in insurance and the confused concept of an “insurance run” (supposedly akin to a bank run).

and Key Financial Stability Issues in Insurance, which is quite interesting, but which the dorks have copy-protected so I can’t copy-paste the good parts.

Capital is virtually irrelevant during a bank run (although loss of capital might trigger the run); capital is actually more important in the insurance game. While it is quite true that Segregated Fund owners can’t take their money and run – eliminating much of the need for liquidity – a lack of capital will have severe effects on the viability of the operation – as Manulife very nearly found out during the crisis.

DGS.PR.A was confirmed at Pfd-3 by DBRS:

The net asset value (NAV) of the Company has increased steadily since the last rating confirmation in April 2013. As of April 3, 2014, the downside protection available to the Preferred Shares is approximately 46.9% and the dividend coverage ratio is approximately 1.1 times. The Pfd-3 rating of the Preferred Shares is based primarily on the downside protection available and the additional protection provided by an asset coverage test, which does not permit any distributions to holders of the Class A Shares if the NAV of the Company falls below $15.

It was a good day for the Canadian preferred share market, with PerpetualDiscounts winning 16bp, FixedResets gaining 3bp and DeemedRetractibles up 13bp. Volatility was minimal. Volume … was peculiar. Very little breadth, but quite a lot of depth! A very high proportion of the volume leaders have been called for redemption.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.1875 % 2,407.4
FixedFloater 4.70 % 4.24 % 32,743 17.96 1 -0.2465 % 3,656.4
Floater 3.02 % 3.15 % 50,422 19.38 4 0.1875 % 2,599.3
OpRet 4.36 % -4.39 % 36,175 0.12 2 -0.0388 % 2,693.2
SplitShare 4.81 % 4.38 % 60,411 4.24 5 -0.1112 % 3,083.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0388 % 2,462.6
Perpetual-Premium 5.55 % -6.02 % 107,298 0.09 13 0.0272 % 2,384.9
Perpetual-Discount 5.41 % 5.39 % 115,531 14.65 23 0.1591 % 2,488.7
FixedReset 4.68 % 3.64 % 195,270 4.34 79 0.0347 % 2,530.7
Deemed-Retractible 5.02 % -0.54 % 146,596 0.16 42 0.1331 % 2,495.2
FloatingReset 2.64 % 2.41 % 182,485 4.26 5 0.0159 % 2,481.7
Performance Highlights
Issue Index Change Notes
MFC.PR.F FixedReset 1.23 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.10
Bid-YTW : 4.25 %
Volume Highlights
Issue Index Shares
Traded
Notes
TD.PR.G FixedReset 338,738 Called for Redemption.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-30
Maturity Price : 25.00
Evaluated at bid price : 24.97
Bid-YTW : 5.44 %
BNS.PR.T FixedReset 315,839 Called for redemption.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-25
Maturity Price : 25.00
Evaluated at bid price : 24.98
Bid-YTW : 4.93 %
CM.PR.L FixedReset 244,798 Called for redemption.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-30
Maturity Price : 25.00
Evaluated at bid price : 24.98
Bid-YTW : 5.27 %
TRP.PR.E FixedReset 223,516 Desjardins crossed blocks of 23,900 and 50,800, both at 25.42. TD crossed 40,000 and RBC crossed 100,000, all at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-04-17
Maturity Price : 23.26
Evaluated at bid price : 25.41
Bid-YTW : 3.86 %
ENB.PF.A FixedReset 182,613 Nesbitt crossed 30,00 at 25.37. TD bought 25,000 from anonymous and crossed blocks of 77,000 and 13,500, all at the same price.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-04-17
Maturity Price : 23.24
Evaluated at bid price : 25.36
Bid-YTW : 4.18 %
FTS.PR.E OpRet 177,950 Nesbitt crossed 175,000 at 25.95.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-06-01
Maturity Price : 25.50
Evaluated at bid price : 25.95
Bid-YTW : -4.39 %
NA.PR.S FixedReset 172,080 RBC crossed blocks of 100,000 and 30,000, both at 25.43. TD crossed 40,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-05-15
Maturity Price : 25.00
Evaluated at bid price : 25.43
Bid-YTW : 3.67 %
TD.PR.E FixedReset 155,319 Called for redemption.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2014-05-30
Maturity Price : 25.00
Evaluated at bid price : 24.98
Bid-YTW : 5.09 %
MFC.PR.L FixedReset 142,354 RBC crossed 120,900 at 24.85.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.85
Bid-YTW : 4.01 %
RY.PR.I FixedReset 114,223 Scotia crossed 50,000 at 25.60. RBC crossed 50,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2019-02-24
Maturity Price : 25.00
Evaluated at bid price : 25.60
Bid-YTW : 3.11 %
VNR.PR.A FixedReset 111,594 RBC crossed 100,500 at 25.37; Scotia crossed 10,000 at the same price.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-10-15
Maturity Price : 25.00
Evaluated at bid price : 25.36
Bid-YTW : 3.93 %
ELF.PR.H Perpetual-Discount 102,208 RBC crossed 100,000 at 24.50.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-04-17
Maturity Price : 24.01
Evaluated at bid price : 24.41
Bid-YTW : 5.65 %
There were 17 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
CIU.PR.C FixedReset Quote: 20.82 – 21.32
Spot Rate : 0.5000
Average : 0.3521

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-04-17
Maturity Price : 20.82
Evaluated at bid price : 20.82
Bid-YTW : 3.76 %

POW.PR.B Perpetual-Discount Quote: 24.32 – 24.67
Spot Rate : 0.3500
Average : 0.2323

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-04-17
Maturity Price : 24.06
Evaluated at bid price : 24.32
Bid-YTW : 5.53 %

PWF.PR.P FixedReset Quote: 23.89 – 24.22
Spot Rate : 0.3300
Average : 0.2261

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-04-17
Maturity Price : 23.53
Evaluated at bid price : 23.89
Bid-YTW : 3.50 %

CGI.PR.D SplitShare Quote: 24.77 – 25.08
Spot Rate : 0.3100
Average : 0.2096

YTW SCENARIO
Maturity Type : Soft Maturity
Maturity Date : 2023-06-14
Maturity Price : 25.00
Evaluated at bid price : 24.77
Bid-YTW : 3.93 %

ENB.PR.H FixedReset Quote: 23.64 – 23.97
Spot Rate : 0.3300
Average : 0.2445

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-04-17
Maturity Price : 22.65
Evaluated at bid price : 23.64
Bid-YTW : 4.02 %

POW.PR.D Perpetual-Discount Quote: 23.27 – 23.58
Spot Rate : 0.3100
Average : 0.2320

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2044-04-17
Maturity Price : 23.01
Evaluated at bid price : 23.27
Bid-YTW : 5.39 %

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