Home > Library > Stable Times > Volume 10, Issue 4  

SVIA Chair Lauds Organization as Resource for Policy Makers

The regulatory environment for the stable value industry has not been particularly hospitable over the past few years. With the business and financial markets coming off a multi-year rash of scandals, accounting regulators pushed the idea that all investments should be subjected to fair-market-value accounting. The stable value industry, of course, has always relied on book- or contract-value accounting for its products, which offer investors stable principal balances and positive returns. Had regulators insisted that fair-value accounting was the only possibility, the industry might have been required to dismantle itself. Of course, that did not happen, something SVIA Chairman Richard Cook, manager of marketing and sales for Genworth Financials Institutional Stable Value Group, attributes as a result of the SVIA staff and membership. They worked diligently with the Financial Accounting Standards Board (FASB), he said, to explain why book-value accounting was the only appropriate standard for stable value products. Late in 2005, FASB embraced and codified that view in FSP AAG INV-a, Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide on December 29, 2005.

Opening the SVIA’s annual forum in Washington, D.C., in October, Cook said the SVIA’s success in preserving book-value accounting was “simply amazing” given the regulatory environment. After all, just a couple of years earlier, the Securities & Exchange Commission had effectively ruled the other way concerning stable value mutual funds, eliminating stable value funds for Individual Retirement Account investors.

Cook said the SVIA succeeded not by pounding on the table but rather by patiently meeting and communicating with regulators to explain how stable value products work. In short, the SVIA offered its staff and members as a resource to standard setters and policy makers rather than as an opponent. Since then, he notes, FASB has indicated it will use its experience with the SVIA as a model for other industry-based initiatives.

In another display of the SVIA’s growing role as an industry resource, Cook said the organization provided assistance to the Boston office of the U.S. Department of Labor’s Office of the Solicitor in working through the bankruptcy filing of a stable value fund in Connecticut. The fund had engaged in risky investment schemes avoided by stable value managers. (See “Circle Trust: A Problem Resolved.”)

All this should serve the SVIA well, Cook said, as it confronts other regulatory challenges, such as the Governmental Accounting Standards Board’s (GASB) project to develop comprehensive standards for reporting on derivatives. A preliminary proposal from GASB would require that stable value funds investing in synthetic GICs report them at fair market value rather than contract value. (See “GASB Derivatives Project Looks at Synthetic GICs,” Stable Times, Third Quarter 2006) That would create confusion for investors and accounting headaches for stable value managers. “We are working with GASB to make sure they understand our product and to achieve another favorable outcome,” Cook said.

Given the organization’s recent success with FASB, that goal doesn’t seem out of reach.

Read Next: Author of The Number: Retirement about More than Money