CLOs: Striking Insurers’ Balance for Yield Potential & Capital Preservation

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Bo Trant, Client Portfolio Manager, Global CLOs

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Ken Griffin, Head of Insurance Solutions, North America

The secret is out. By design, structured credit provides diversified exposure and structural protection, particularly for investment grade investors, reducing their overall credit risk exposure. At the same time, the perceived complexity of the asset class provides the potential for higher spreads on a like-for-like basis in credit rating and regulatory capital. As a result, “ABS and Other Structured Securities”, as highlighted by the National Association of Insurance Commissioners (NAIC), has been one of the fastest growing groups of asset class categories for U.S. insurers in recent years.¹

The most commonly used asset class within this broader category is collateralized loan obligations (CLOs), accounting for over 40% of U.S. insurers’ allocations.² The efficiency features of securitized assets are particularly pronounced for CLOs, given they have the additional benefit of active management of the underlying collateral. This allows managers to generate alpha and manage risk at both the underwriting stage and throughout the securitization’s lifecycle. In addition, CLOs offer a higher level of liquidity and transparency compared to alternative assets, enhancing insurers’ public fixed income portfolios.

1. Source: NAIC. As of December 31, 2023. In other words, structured assets excluding (agency and non-agency) RMBS and CMBS.   
2. Source: NAIC. As of December 31, 2023.