Private equity insurance investors facing higher capital charges for CLOs - Insurance News | InsuranceNewsNet

InsuranceNewsNet — Your Industry. One Source.™

Sign in
  • Subscribe
  • About
  • Advertise
  • Contact
Home Now reading Top Stories
Topics
    • Life Insurance News
    • Annuity News
    • Health/Employee Benefits
    • Property and Casualty
    • Advisor News
    • Washington Wire
    • Regulation News
    • Companies
    • Earnings
    • Video
    • Monthly Focus
    • Sponsored Articles
  • Exclusives
  • NewsWires
  • Magazine
  • Webinars
  • Free Newsletters
Sign in or register to be an INNsider.
  • INN Exclusives
  • Life Insurance News
  • Annuity News
  • Health/Employee Benefits
  • Property and Casualty
  • AdvisorNews
  • Washington Wire
  • Regulation News
  • Sponsored Articles
  • Monthly Focus
  • INN Exclusives
  • NewsWires
  • Magazine
  • Webinars
  • Free Newsletters
  • Insider Pro
  • About
  • Advertise
  • Editorial Staff
  • Contact
  • Newsletters

Get Social

  • Facebook
  • Twitter
  • LinkedIn
Top Stories
Top Stories RSS Get our newsletter
Order Prints
March 24, 2023 Top Stories No comments
Share
Share
Tweet
Email

Private equity insurance investors facing higher capital charges for CLOs

Private equity interest in insurance assets is generating concerns.
A proposed rule change would increase the capital charges for riskier elements of CLOs.
By John Hilton

State insurance regulators held a robust discussion Thursday on an interim proposal to increase capital charges for private equity backed insurers who invest in riskier collateralized loan obligations (CLOs).

They found no agreement and ended the spring meeting session seemingly no closer to a decision.

The Risk-Based Capital Investment Risk and Evaluation Working Group devoted most of their hour-long session to the proposal to increase capital charges for the riskiest elements of CLOs by 50% in the interim.

The National Association of Insurance Commissioners is moving ahead with a rule change that will tie CLO capital charges to the NAIC's own modelling rather than CLO ratings. Regulators want to remove an inconsistency in the rules that results in insurers holding less capital against CLOs than they do against the underlying loans that CLOs hold.

A CLO is a single security backed by a pool of debt. They are often backed by corporate loans with low credit ratings or loans taken out by private equity firms to conduct leveraged buyouts. Given the low-interest-rate environment of the past 20 years, insurers sought out riskier investments in order to make a good return.

The issue is splitting insurers backed by large private equity firms such as Blackstone, Apollo Global and KKR against traditional life insurers such as New York Life and Prudential Financial, which warn of growing risks.

'Very limited'

Francisco Paez, head of structured products research at MetLife Investment Management, spoke for a group of traditional insurers. Taking note of the irony, Paez nonetheless reiterated the strong support for raising the capital charge for the riskiest equity components of CLOs from 30% to 45%.

Insurers are nearly always opposed to stronger regulation. Not in this case, Paez said.

"We feel that following a modeling approach is a much better way to get to the real risk associated with CLO tranches than using the historical performance data," he explained. "Historical performance data for CLOs is very limited and therefore, inadequate."

Many regulators questioned the need for an interim approach. Kevin Clark is chief accounting specialist for the Iowa Insurance Division. He questioned whether regulators have the analytical analysis to support the 50% increase and whether the group is moving too fast.

"We have some pretty good idea that it should be higher, at least in the examples that we've looked at," Clark said. "But we don't know what that should be. To me, a key point on taking such an interim step would be what is the magnitude of the population that we're looking at? And is it a pressing enough issue that an interim step is needed?"

The working group closed a 45-day comment period Jan. 27 on its interim proposal. It would have to adopt a change by the end of April and then agree to the details by the end of June, regulators said.

Pump the brakes

Jeff Johnson is vice president of product development for Global Atlantic Financial Group. He spoke briefly on his company's opposition to the interim proposal, calling it a rush job.

"There's time to do this and do it in a way that gets the right capital for the right risk, which we all support," Johnson said. "We're not in the camp of not doing anything, but we are in the camp of doing something that is thought out in line with the way capitol changes have been approached in the past."

Over the past decade, U.S. Life Insurer CLO investments have grown at about 20% per year while General Accounts have grown at less than 5% per year, the group of traditional insurers pointed out in another comment letter.

NAIC officials have noted that most of CLO holdings are in higher-grade investments unlikely to be affected by their proposal for increase capital charges.

Doug Stolte is deputy commissioner at the Virginia Bureau of Insurance. There is some "concentration risks for certain insurers," he said, adding that he doesn't know what the right charge should be for the riskier elements of CLOs.

"It's very binary," he said of the riskier investments. "You either hit a home run or you're out. So that's a concern I have. There's a lot of attention being paid to these complex investments."

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

© Entire contents copyright 2023 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

Older

The dos and don’ts of discussing market volatility on social media

Newer

Study shows significant growth in 401(k) balances for younger workers who consistently participate

Advisor News

  • Biden ESG rule survives challenge from 25 red states
  • Making your money last: The two-bucket investment approach
  • Succession Planning: mentorship and strategic planning
  • Social Security overpaid billions to people. Now, it’s demanding the money back
  • Convicted murderer Alex Murdaugh pleads guilty to 22 federal financial fraud charges
More Advisor News

Annuity News

  • Committee of Annuity Insurers Issues Public Comment to Treasury Dept.
  • Annuity sales up 27% through six months, LIMRA reports
  • Indexed annuity products set record of $25.1B in Q2, Wink finds
  • Features, taxation of individual annuities help middle-class Americans feel confident about retirement
  • Oklahoma Insurance Department adopts best interest annuity rule
Sponsor
More Annuity News

Health/Employee Benefits News

  • John Hancock launches Premier Benefit IUL
  • Gov. Reeves announces 11th-hour plan for Mississippi hospital crisis. Opponents pan it as 'too little, too Tate'
  • Feds say thousands of Iowans were disenrolled from Medicaid due to eligibility error
  • Laura Kelly: Kansas lawmakers voted to expand Medicaid before. Do it again.
  • 500K have Medicaid coverage restored after computer problem fixed
More Health/Employee Benefits News

Life Insurance News

  • John Hancock launches Premier Benefit IUL
  • Why aren’t more women buying life insurance?
  • Corebridge Financial to sell UK life insurance business to Aviva
  • Analysis shows decreasing mortality risks for Black, Hispanic life insurance applicants
  • U.S attorney alleges obstruction, seeks stiffer sentence for ‘Annuity King’
More Life Insurance News

- Presented By -

Top Read Stories

  • MAPFRE Insurance faces lawsuit for data breach
  • Low financial literacy may be costing consumers money
  • U.S attorney alleges obstruction, seeks stiffer sentence for ‘Annuity King’
  • Allstate, other insurers among those facing robocall lawsuits
  • Analysis shows decreasing mortality risks for Black, Hispanic life insurance applicants
More Top Read Stories >

Press Releases

  • Hexure Acquires Vive
  • Senior Market Sales Adds EMG Insurance Brokerage to Growing Network of Health and Wealth Companies
  • Investors Preferred Life Insurance Company Names Nikki Pethtel as Its Next President
  • Insurity Celebrates its 15-Year Partnership with RCG Global Services, Marking a Legacy of Trust, Growth, and Digital Transformation
  • Sally Jewell Named Chair of Symetra Financial Corporation Board of Directors
More Press Releases > Add Your Press Release >

How to Write For InsuranceNewsNet

Find out how you can submit content for publishing on our website.
View Guidelines

Topics

  • Life Insurance News
  • Annuity News
  • Health/Employee Benefits
  • Property and Casualty
  • Advisor News
  • Washington Wire
  • Regulation News
  • Companies
  • Earnings
  • Video
  • Monthly Focus
  • Sponsored Articles

Top Sections

  • Life Insurance News
  • Annuity News
  • Health/Employee Benefits News
  • Property and Casualty News
  • AdvisorNews
  • Washington Wire
  • INN Magazine

Our Company

  • About
  • Editorial Staff
  • Magazine
  • Write for INN
  • Advertise
  • Contact

Sign up for our FREE e-Newsletter!

Get breaking news, exclusive stories, and money- making insights straight into your inbox.

select Newsletter Options
Facebook Linkedin Twitter
© 2023 InsuranceNewsNet.com, Inc. All rights reserved.
  • Terms & Conditions
  • Privacy Policy
  • AdvisorNews

Sign in with your Insider Pro Account

Not registered? Become an Insider Pro.
Insurance News | InsuranceNewsNet