NAIC stress tests US insurers’ guaranteed loan obligations

The U.S. standards body, the NAIC, released its stress test results on U.S. insurers’ exposure to collateralized loan bonds (CLOs) at the end of 2020.

The 2021 stress tests examined the resilience of CLOS in three different scenarios.

The 2020 end-of-year stress test reflects the findings of the 2019 end-of-year stress test, in which normal A-rated CLO tranches suffered worst-case losses.

In comparison, the 2018 end-of-year stress test resulted in no losses on normal CLO tranches rated A and above in the three scenarios.

The Capital Market Bureau and the Structured Securities Group of the NAIC have carried out stress tests on the CLO investments of US insurers.


However, the NAIC analysis also showed that a few insurers have concentrated their investments in Combo Notes and low-rated tranches.

Given the complexity and volatility of CLO investments in general, analysts believe that the exposure as a percentage of total surplus is worth identifying, especially for insurers with large exposures as a percentage of surplus. total.

Capital Market’s special report reveals that CLO exposures increased at the end of 2020 to reach $ 192.9 billion, from around $ 156.9 billion at the end of 2019.

Overall, the US insurance industry’s CLO exposure would remain relatively low at around 2.6% of total cash and invested assets.

The majority (78%) of these investments are rated A or higher, so the NAIC does not believe that the CLO asset class currently poses a risk to the industry as a whole.

However, large exposures to CLOs relative to surpluses and exposures concentrated on atypical securities such as Combo Notes and low rated tranches are potential risks, especially in a stressed environment.

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