Timeline of the project
NAIC staff is moving quickly with the timeline. Based on the commentary from 2022 Summer National Meeting, the proposed NAIC Designations and associated RBC charges will come out in 2023 with implementation date setting on 12/31/2023 at earliest or 12/31/2024 more realistically. Either way, the CLO changes are imminent in next 2 years.
What does this mean for investment strategy?
The increases in RBC factors will reduce the attractiveness of lower rated CLO investments for insurance companies. SLC believes that the proposed approach will have minor impact for the vast majority of insurers, who largely focus on the AAA and AA tranches. However, insurers who have added lower rated tranches may see increased capital requirements. If these insurers are capital constrained, it may lead to changes in investment strategy.
While we are a few years away from the new CLO capital framework, insurers and their asset managers should use this time to vet current and future holdings, ensuring there are no surprise capital implications.
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