Model-derived Risk-based Capital for Collateralized Loan Obligations

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Model-derived Risk-based Capital for Collateralized Loan Obligations

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Francisco Paez Angela Best Kevin Quirk
JUL 22, 2022

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At the June 9, 2022 meeting of its Valuation of Securities Task Force (“VOSTF”) the National Association of Insurance Commissioners (“NAIC”) discussed a staff recommendation to change how the risk-based capital (“RBC”) for insurers’ investments in collateralized loan obligations (“CLO”) is determined. The staff recommendation has two main objectives:

  1. Derive RBC for CLO holdings through cash flow modeling of each security, and
  2. Close the gap between the RBC of the leveraged loans backing a CLO and the blended RBC of the CLO tranches.