US insurers warned over $239m capital boost requirement against CLO holdings

Written by Adam Cadle

19/06/2020

US insurance companies will have to boost the capital held against their CLO holdings to $384m from $145m if rating agencies go ahead with a one-notch cut, UBS has said.

Moody’s, S&P Global and Fitch have put more than 2,100 securities in the US and Europe on review for potential downgrades. Figures from the National Association of Insurance Commissioners (NAIC) show that US insurance companies have around $158bn in CLOs in their portfolios, or about a quarter of the US market for CLOs.

Life insurer Athene Holding holds £11bn in CLOs, representing around 9% of its $121bn investment portfolio at 31 March 2020. Under a severe downgrade scenario, if all of the company’s CLO holdings rated BBB are cut to junk, then Athene would have to increase its capital against its CLO holdings by around $140m, UBS has estimated.

In May, Japan's Norinchukin Bank, the world's single largest buyer of CLO debt, decided to stop investing in the securities after it took a $3.7bn unrealised loss on its holdings.

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