Wells Fargo Asset Management posted a "Product Alert" with the title, "NAIC policy change affects Wells Fargo Government Money Market Fund." It says, "Effective July 1, 2018, the National Association of Insurance Commissioners (NAIC) will no longer allow money market funds that invest in securities issued by certain U.S. government agencies to be eligible for listing on the NAIC U.S. Direct Obligations/Full Faith and Credit Exempt List for mutual funds. This change in policy affects the Wells Fargo Government Money Market Fund, which will no longer be eligible for inclusion on this list."

Wells' update tells us, "The following Wells Fargo Money Market Funds will continue to maintain their NAIC U.S. Direct Obligations/Full Faith and Credit Exempt designation: Wells Fargo 100% Treasury Money Market Fund, and Wells Fargo Treasury Plus Money Market Fund. Please note there are no restrictions on the types of money market funds that insurance companies can purchase. The NAIC mutual fund list identifies the funds that are exempt from a risk-based capital charge. Thus, money market funds that do not appear on the list can still be held by insurance companies, but will be assessed the following risk-based capital charge: Life companies: 0.40%, and Property & Casualty companies: 0.30%."

The NAIC's latest "Money Market Mutual Fund List," which is as of April 2018, includes 286 money market funds from 26 managers, including Government and Treasury fund offerings from AB, BlackRock, BMO, Cavanal Hill, Deutsche, Dreyfus, Federated, Fidelity, First American, Goldman, HSBC, Invesco, JPMorgan, Morgan Stanley, Northern, PFM, PIF, PNC, RBC, SEI, SSGA, TD, UBS, Wells Fargo, Western and Wilmington. (Note: The list still includes Government funds that invest in government agencies.)

A note on the list explains, "Please refer to Part Six, Section 2 (b) (i) of the Purposes and Procedures Manual of the NAIC Investment Analysis Office for requirements relating to the U.S. Direct Obligations/Full Faith and Credit Exempt List. Please refer to Part Two, Section 4 (c) (i - ii) of the Purposes and Procedures Manual of the NAIC Investment Analysis Office for more information on what the NAIC deems to be U.S. Government Obligations."

A Memorandum from the NAIC, the National Association of Insurance Commissioners, entitled, "Re: Staff Report on Errors Made in Placing Mutual Funds on the U.S. Direct Obligations/Full Faith and Credit Exempt List and Proposals to Address the Errors." It describes the issue, saying, "The Securities Valuation Office (SVO) added approximately 40 funds to the List that do not qualify to be on it. The added funds invest in obligation of government sponsored enterprises (GSOs) as defined in Part Two, Section 4(c)(ii) of the Purposes and Procedures Manual of the NAIC Investment Analysis Office (P&P Manual). The list is limited to funds that invest 100% of total assets in direct and full faith and credit obligations of the U.S. government or collateralized repurchase agreements comprised of such obligations at all times."

It continues, "The SVO has established that insurer investment in the added funds is approximately $6 billion.... Although the SVO can reverse the errors by not renewing the non-compliant funds, the SVO recommends that the Task Force consider expanding the list to include the issuers/securities identified in Part Two, Section 4(c)(ii) of the P&P Manual, Attachment One reproduces the sections of the P&P Manual discussed in this memorandum."

As we understand the issue, the NAIC held a meeting on Feb. 8, 2018, and a task force decided to remove any funds holdings Government agency securities from its list. The policy on the "U.S. Direct Obligations/Full Faith and Credit Exempt List" has not changed, but the policy has previously been erroneously "misinterpreted".

The move appears to include all of the major Government agency issuers. The largest issuers among Govt MMFs tracked by Crane Data include: Federal Home Loan Bank ($542.8 billion), US Treasury ($297.1B), Federal Farm Credit Bank $75.6B), Federal Home Loan Mortgage Co $40.4B), Federal Reserve Bank of New York ($20.9B) and Federal National Mortgage Association ($18.9B).

For more on the NAIC and money market funds, see our June 15, 2016 News, "NAIC Reconsidering Changes to Prime MMFs Says JPM; BlackRock Letter," and our April 18, 2016 News, "NAIC Eliminates Class 1 Status for Prime Money Funds; American Update."

Finally, note that in our March 19 News, "MMF Assets Break 2.85 Tril; Fed Z.1: Sec Lending, Businesses Increase," we wrote, "Life Insurance Companies held $42 billion (1.5%) [in money market funds], and Property-Casualty Insurance held $19 billion (0.7%), according to the Fed's Z.1 breakout."

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