Covid shock could topple US insurers’ exotic CLOs

Losses on “atypical” tranches could hit $899 million

A coronavirus-induced recession could inflict big losses on US insurers’ unconventional collateralised loan obligations (CLOs) assets – including highly-rated tranches – a stress test by the National Association of Insurance Commissioners (NAIC) shows.

“Atypical” CLOs, those the NAIC describes as having unusual payment features and non-standard principal balances, made up $1.4 billion of US insurers’ aggregate assets as of end-2019, an increase of 40% year-on-year. This does not include CLO

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