US insurers’ CLO exposure increases by 12%

Written by Adam Cadle

16/09/2022

US insurers’ CLO exposure increased by 12% to $216.3bn as of year-end 2021, from $192.9bn at year-end 2020, latest figures published by AM Best have shown.

However, the pace of growth has slowed from 23% and 28% at year-end 2020 and year-end 2019, respectively.

Consistent with prior years, the majority of total CLO exposure was held by life companies, followed by P&C insurers. Life companies’ share of the industry’s total exposure declined to 76% at year-end 2021 from 80% at year-end 2019, while P&C companies’ share rose to 21% from 17% over the same period.

CLOs have accounted for a relatively small portion of the industry’s cash and invested assets, as well as overall bond investments, but the two metrics have been trending higher over at least the last few years. CLOs accounted for 2.7% of total cash and invested assets at year-end 2021, a slight increase from 2.6% the prior year but a more meaningful increase from 1.9% at year-end 2018. As a percentage of total bond investments, CLOs have increased to 4.4% at year-end 2021 from 2.8% at year-end 2018.

Large companies accounted for almost 80% of the US insurance industry’s CLO exposure at year-end 2021, consistent with prior years. Insurance companies with assets between $1bn and $10bn accounted for an additional 18% of the industry’s exposure.

At year-end 2021, the top 10 US insurance groups with CLO exposure accounted for 41% of total CLO exposure, compared to 45% at year-end 2020 and year-end 2019. The top 14 US insurance groups accounted for half of the total CLO exposure, compared to the top 10 at year-end 2020. At least six of the top 10 have CLO management subsidiaries. As such, these insurers benefit from having internal CLO infrastructure and knowledge. The top 25 insurer groups accounted for 64% of the industry’s CLO exposure at year-end 2021 compared to 70% at year-end 2020. The decrease in percentages year-over-year (YOY) implies a more diverse CLO investor base than in prior years, AM Best stated.

The credit quality of US insurers’ CLO investments shifted marginally in 2021 compared to 2020, with AAA-rated tranches declining to 39.6% of total CLO exposure from 42% and AA-rated tranches increasing to 22% of total exposure from 21%.

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