COSSEC effects temporary rule on surplus allocations
The Corporation for the Supervision and Insurance of Puerto Rico Cooperatives, known as COSSEC in Spanish, announced Monday the implementation of a temporary rule applicable to the distribution of surplus revenue — a statute designed to ensure the health and financial soundness of the island’s credit unions in the face of credit rating changes.
COSSEC President Daniel Rodríguez-Collazo said the rule is the result of a “historic” collaborative agreement between the agency and members of the island’s co-op movement who worked together to evaluate different models and tools to distribute surplus earnings while safeguarding the system’s solvency.
“We’ve identified that the possibility of distributing surplus amounts at the credit unions could be affected in some cases by changes in the valuation of investments, particularly investments associated with the municipal debt market, which have undergone a value readjustment in recent months due to changes in their credit ratings and rising interest rates,” Rodríguez-Collazo said.
“This has caused some cooperatives to have registered losses on the books, particularly those cooperatives that have a high investment portfolio with a high concentration of these values,” he said.
The impact on credit union investment portfolios has led to a number of cooperatives reporting unrealized losses on investment assets that exceed 20 percent of its indivisible capital, preventing some of them to distribute their current surplus money, he said.
The new rule allows co-ops to distribute the identified surplus amounts if the unrealized losses are covered by a contingency reserve that is not earmarked for other events, he said.