Life insurers may be taking on a little more investment risk than they used to, but only a little more, and even the holdings getting the most scrutiny seem pretty safe.
Shachar Gonen and other analysts at Moody’s Investors Service have given that assessment of life insurers’ investments in a new report.
(Related: Meet the Collateralized Fund Obligation)
The analysts note that leveraged loans and collateralized loan obligations (CLOs) have been getting more attention, and that life insurers invest in both types of assets.
A leveraged loan is a loan made to a borrower who has a weak credit history or a large amount of debt.
A CLO is a security backed by a pool of loans.
Today, the analysts say, CLOs account for only about $60.5 billion of U.S. life insurers’ assets, or about 1.5% of the cash and invested assets they held at the end of 2017.
About 55% of life insurers’ CLOs have ratings of A or above.
But about one-third of life insurers’ CLOs either have no Moody’s ratings or have had their Moody’s ratings withdrawn, the analysts note.
But 90% of the CLOs unrated by Moody’s have high ratings from the National Association of Insurance Commissioners’ Securities Valuation Office, the analysts say.
In addition, most of the CLOs life insurers buy are tied to loans made to big companies, rather than to small and midsize businesses, the analysts say.
Exposure to other types of potentially risky assets, such as commercial mortgage loans, has been increasing at a modest pace, and insurers have focused on lending to borrowers in the top two borrower rating quality categories, the analysts write.
— Read In Leveraged Loans, It’s Beginning to Look a Lot Like 2008, on ThinkAdvisor.