FWCJUA Investment Committee Meeting Report: April 24

Apr 24, 2009

The Florida Workers’ Compensation Joint Underwriting Association (“FWCJUA”) Investment Committee (“Committee”) met via teleconference on Friday, April 24, 2009, to review the FWCJUA’s current investment portfolio and consider whether to continue the current compliance exceptions to the FWCJUA Investment Policy, given the state of the investment marketplace and the FWCJUA’s portfolio performance.

The Committee received an Investment Report from FWCJUA Staff regarding the latest status and outlook on the downgraded bonds currently held in the FWCJUA’s portfolio that had been previously authorized. 

Since the Committee’s most recent meeting, there have been no changes in those bonds, which include Anheuser Busch, Home Depot, Vulcan Materials, CitiGroup and Lehman Brothers.

In addition, on April 23, the rating of the FWCJUA’s SunTrust bond was downgraded by Moody’s from A1 to Baa1.  A Committee member said that, since all banks have been downgraded, it is misleading to single out SunTrust as cause for concern.

The Committee passed a motion to continue holding those items within the Investment Portfolio that are currently authorized FWCJUA Investment Policy exceptions.  It then passed a motion to authorize an additional exception to the Investment Policy to continue holding the downgraded SunTrust bond.

The Investment Report indicated that the FWCJUA’s bond holdings are performing well — better, in fact, than the corporate bond market in general — despite the troubled real estate market’s negative effect on earnings.  A Committee member noted that Moody’s has become more aggressive in rating commercial real estate, which represents another factor affecting FWCJUA earnings. 

With the earnings season over, the positive news is that banks reported profits for the first quarter.  Also, bonds are currently trading better than they were in March 2009.   However, the negative factors embedded in banks’ reports include the fact that most investment banks’ fixed-income trade drove profits, and there is still credit stress.  Banks are benefiting from diversification, the infusion of government funds and changes in mark-to-market accounting rules; however, despite being better capitalized, the underwriting process is limiting to whom banks will lend.  Thus, financial institutions are being much more cautious in that regard.

The Committee discussed what effect the results of a federally-mandated “stress test,” which were conducted to determine the financial health of banks and are scheduled to be released on May 4, would have on investments.  It is unknown to what extent the results will be shared with the public.  A member expressed doubt regarding its value to investors in differentiating between banks in allocating loss assumptions, as the federal government already has a great deal of that information.  He added that the FWCJUA bonds are held by well-capitalized banks, so there are no immediate concerns.

The next meeting of the Investment Committee is scheduled to be held May 27 at 10 a.m., and the agenda includes an annual review of the FWCJUA Investment Policy.


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