BPI-Philam Life Assurance Corp. is planning to enter into a five-year cross-currency swap with Hongkong Shanghai Banking Corp. (HSBC) to cover obligations under its newest peso-denominated Max Protext product.

Based on documents submitted to the Bangko Sentral ng Pilipinas (BSP), the cross-currency swap will enable the insurer to cover its exposure under the Max Protect vis-à-vis its dollar assets in the form of Philippine bonds or ROPs.

The same documents explained that this is allowed since there is "valid underlying obligation."

The cross-currency swap will require inward remittance of the US dollars and redemption proceeds of the ROPs as these will fund Bank of the Philippines (BPI) foreign exchange obligations under the swap deal.

BSP's Monetary Board approved
this month BPI-Philam Life's request to purchase up to $70 million from the spot market for investment in ROPs due 2015 relative to its Max Protect policy.

BSP documents said the product will increase BPI-Philam Life market share and provide BPI clients seeking higher yields investment alternatives.

However the BSP said total foreign exchange that will be purchased this year will not exceed $70 million and the buying will be done in three tranches. The insurance firm will also have to comply with existing BSP requirement for inward-remittance and sale for pesos of the foreign exchange proceeds of the ROPs, such as via cross-currency swap.

BPI-Philam Life will buy foreign exchange from central bank-authorized agent banks or its subsidiary or affiliate corporations. The first $30 million of the $70 million will not require BSP approval.