2) The deposit account would need to be liquid. Since the promulgating Does such a deposit product exist? Is there really a way for reinsurance
events leading to a trust ‘liquidation’ come quickly (often natural companies posting collateral to free up their credit lines, reduce their fees,
disasters), things such as bank CDs or other time-based deposits are significantly increase their rate of return, and maintain the safety of their
risky. Besides, most bank CDs don’t pay all that well. principal, while not creating a withholding event? Obviously, I wouldn’t
be writing this if there was not. Wells Fargo has such a product. And to
3) The deposit would need to be extremely safe. Most reinsurance
my knowledge, we are the only one that does. It allows clients to pick
companies do not want to take principal risk. If there was such a
up investment return that is not in the form of dividends and therefore
‘deposit account’ available, the depositor would want to be sure that
is not subject to withholding tax. And the fees are not only far less than
the rating of the bank holding the deposit is as high as possible. (For
LOCs, the fees for a Wells Fargo trust are usually less than other trustees.
instance, if Wells Fargo were to offer such a vehicle, then the client
Our clients have deposited billions of dollars into such an account and
could rely on our ‘AAA’, ‘Aaa’, and ‘Stable’ ratings. And since we are
are enjoying all of the benefits listed above, and more.
the only bank in the US with this rating combination—the highest
possible—it would put us at somewhat of an advantage, right?). In conclusion, there is a better way to secure reinsurance arrangements
than we have seen in the past. If a reinsurance company has trusts in place
4) Further to the point of security: Banking law mandates that “ANY
where it is using US Treasuries (or similar) as the investment vehicle, it
deposit where the bank holding the money has fiduciary responsibilities
should seriously look at a bank with a deposit account such as the one
needs to be fully collateralized by that bank’s assets to a level at least
at Wells. It will only serve to increase its rate of return substantially. If a
100% of the deposit”. This means the bank in question would need to
reinsurer is collateralising LOCs, then the above article should give it all
be willing to set aside an equal amount of its own assets and deposit
the more reason to use a Wells Fargo Reinsurance Trust. The money is
those assets in a separate account as collateral for that deposit. The
now on the table. Who is going to take it?
bank in question could be subject to billions of dollars in matching
funds requirements. For most banks, that is the deal breaker.
5) The rate of return would need to be something more than the standard
returns that you would see from US Treasuries or just an ‘overnight
deposit vehicle’. A bank that offers such an option would need to
have an appetite for deposits and reward its clients handsomely for
Robert Quinn is vice president of the Collateral Trust Division at
these deposits.
Wells Fargo. He can be contacted at: robert.g.quinn@wellsfargo.com
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