Key facts
- US insurance regulators have updated capital rules for insurers' investments in collateralised loan obligations (CLOs).
- The changes were agreed upon in late June, following a four-year review process.
- Critics argue the revised rules do not adequately account for correlations within loan pools and across CLO portfolios.
- These critics suggest the new capital charges may underestimate tail risks associated with CLO investments.
US insurance regulators have finalized changes to capital rules governing insurers' investments in collateralised loan obligations (CLOs). The revisions, agreed upon in late June after a four-year deliberation period, represent the initial phase of a broader regulatory review. However, some industry participants and critics argue that these updated rules fall short of adequately addressing potential risks. Specifically, they contend that the new capital charges underestimate the correlations that exist within loan pools and across different CLO portfolios. This underestimation, critics suggest, could lead to a failure to account for significant tail risks, potentially leaving insurers more exposed than the revised rules imply.