Recently, the National Association of Insurance Commissioners (“NAIC”) in the U.S. proposed significant changes to its Framework for Regulation of Insurer Investments. These changes would be the most significant since the NAIC established its risk-based capital framework in the early 1990’s. This proposal is being made in response to insurers’ increased investment in asset-backed securities (“ABS”) and the growing trend for private equity (“PE”) firms to own insurers or to manage significant portions of an insurance company’s portfolio.  As of July, PE firms owned 137 insurers, with total assets of $533.7 billion, and so far this year have used insurers to place $1.4 billion of unsecured debt for their business development companies (“BDCs”).

The NAIC’s proposed framework could result in changes on the capital charges, valuation, and credit ratings for insurance investments in ABS. While the NAIC has had separate workstreams underway for some time to update its regulation of credit ratings for ABS, the risk-based capital charges for CLOs and other ABS, and actuarial asset adequacy testing for investments, this proposal represents the NAIC’s first attempt to holistically address its framework for regulating insurance investments in ABS. Taken as a whole, these changes could have a profound impact on the appetite for insurance companies to invest in ABS and to partner with PE firms. Comments on the NAIC’s proposed new framework for insurance investments are due on October 2^nd.

If any AIMA member PE firm or BDC are interested in responding to this NAIC proposal, please contact Joe Engelhard.