US life insurers have slowed the pace of CLO investments in recent years, as the firms “marginally dial back” credit risk while diversifying investments into private credit and securitization alternatives, according to a new report published on Nov. 17 by Moody’s Investors Service.
The US life insurance sector report noted that insurers grew CLO holdings by a cumulative 21% between year-end 2022 and 2024, “though the pace of growth has slowed and credit quality has improved slightly as the companies have marginally reduced investment credit risk,” stated Moody’s analysis. Insurers have also let up on the level of CLO investments as they “have tapped other investment sources including private investments, private credit, infrastructure debt, and other asset-backed securities.”
The report follows on a Nov. 12 insurance sector report from Moody’s that noted insurers’ “continued shift in their investment portfolios toward less-liquid and privately rated investments.”
That report did not indicate whether the added private investments were displacing CLO purchases, which grew from $157 billion to $190 billion (21%) between year-end 2022 and 2024. The 2024 figure represented 3.6% of insurers’ cash and invested assets industrywide, compared to 3.4% at year-end 2022. The Moody’s report stated that some companies hold individual CLO exposures of up to 18%.
The Nov. 17 report’s assertion of declining growth mirrors prior research from the National Association of Insurance Commissioners (NAIC) that previously reported a 20% annual growth rate for insurers’ CLO holdings between 2019 and 2021 in insurers’ CLO holdings. The NAIC stated that rate had fallen to 15% in 2022 and to just 9.5% in 2023. (The figures are the latest available numbers published by the NAIC, an industry standards-setting body overseen by state insurance regulators).
The Moody’s CLO holdings report stated the CLO holdings for insurers is almost exclusively composed of investment-grade securities, with 39 percent of the investments in CLO bonds with equivalent Aaa/AAA ratings. Only three percent of holdings are in speculative-grade (equivalent to single-B or below) notes.
About $25 billion (or 13% of insurers’ total CLO holdings) are in middle-market/private credit CLOs, with a majority of those investments taking place between 2021 and 2024, according to the Nov. 17 Moody’s report.
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