The great wrap capacity shortage increasingly looks like a distant memory.
Following the financial turmoil of 2008, a number of financial institutions stopped underwriting wrap contracts for stable value funds, limiting the industry’s growth prospects. Over the past several years, though, a number of new issuers have entered the market and some veteran players have increased their appetite for new business. The result? The market for stable value contracts is more diverse and capacity is far less constrained.
Here are the numbers: The industry had $77.5 billion in potential new capacity in 2012. It had $103.5 billion in 2013, $87.8 billion in 2014, and, based on an SVIA survey, looks to have $79 billion this year, says Marijn Smit, president, Investment Solutions, Transamerica Investments & Retirement.
Participating in a roundtable discussion of industry trends at the 2015 SVIA Spring Seminar, Smit noted that it isn’t uncommon for some potential wrap capacity to go unused. In 2012 the industry took on $27.0 billion in new business, and in 2013 it added $48.8 billion. Those amounts represented less than one-third and one-half of the available new capacity, respectively, in those years. In 2014 the industry didn’t need any of its available new capacity as stable value assets held steady, although many funds took the opportunity to further diversify the number of wrap providers used.
The latest data came from an SVIA survey conducted in March 2015. The survey drew responses from 22 issuers with $488 billion in product balances at year-end 2014. That was down from $544 billion a year earlier, but the decline was primarily due to a large issuer who participated in the 2014 survey not reporting data this year.