CFTC Staff Letter 14-145: Exemption from Financial Statement and Disclosure Requirements for Insurance-Linked Securitization Vehicle

U.S. COMMODITY FUTURES TRADING COMMISSION
Three Lafayette Centre
1155 21st Street, NW, Washington, DC 20581
Telephone: (202) 418-5977
Facsimile: (202) 418-5407 gbarnett@cftc.gov
Division of Swap Dealer and
Intermediary Oversight
Gary Barnett
Director
CFTC Letter No. 14-145
Exemption
November 12, 2014
Division of Swap Dealer and Intermediary Oversight Re: Request for relief from commodity pool operator obligations under Commission regulations 4.22 and 4.24(s) with respect to an insurance-linked securitization vehicle Dear :
This is in response to your letter dated December 10, 2013 to the Division of Swap Dealer and Intermediary Oversight (the “Division”) of the U.S. Commodity Futures Trading Commission (the “Commission” or the “CFTC”). You request on behalf of “A”, a registered commodity pool operator, and the directors of “B” (the “Issuer”) no-action relief from: (1) the financial statement requirements under Commission regulation 4.22; and (2) the disclosure requirements of Commission regulation 4.24(s) with respect to the Issuer. Background Based upon the representations made in your letter and other telephone and email correspondence (altogether, the “Correspondence”), which includes the Offering Circular of the Issuer, dated “D” (the “Offering Circular”), the Offering Circular Supplement No. 1 to the Offering Circular (the “Offering Circular Supplement”), and the Pricing Supplement No. 1 for the “E” Notes to the Offering Circular, we understand the facts to be as follows. You state that the Issuer entered into a transaction designed to transfer insurance risk relating to excess mortality from “C”, acting for itself and certain of its affiliates (the “Protection Buyer”), to the investors in the insurance-linked notes offered by the Issuer (the “ILS Notes”) through a Risk Transfer Agreement (the “RTA”). The RTA provides for quarterly payments from the Protection Buyer to the Issuer, which, together with the returns on the collateral owned by the Issuer, are used to fund interest payments on the ILS Notes, in exchange for contingent payments from the Issuer to the Protection Buyer related to the occurrence of certain excess mortality events “F” (the “Excess Mortality Events”). In order to fund its potential obligations under the RTA, the Issuer issues the ILS Notes, the proceeds of which are invested in a pool of high quality instruments, such as “AAA”-rated bonds issued by the European Bank for Reconstruction and Development (the “EBRD”) and U.S. Treasury-only money market funds.