Invesco Insurance Insights

Hello everyone.

My name is Jaijit Kumar and I cover insurance solutions for Asia here at Invesco.

Joining me today is Derek Fin from a private credit team.

Welcome, Derek.

Thanks, Jaijit

So insurers in the region have been looking at private credit for quite some time.

It's an area of focus for them, not least a way to diversify their existing credit exposure, but also the yield return pick up from the illiquidity and complexity premium.

But one other area that a lot of insurers have been looking at is structured credit, notably CLOs

So just wanted to get your take on that and you know, if you can run us through what's kind of the difference between CLOs and your typical private credit, if you will?

Yeah, I think it's the right question to ask because there's been a lot of noise and a lot of headlines in private credit recently.

And it's very easy to just think about it in one asset class format.

We like to think of it as 2 segments.

One is the illiquid side of private credit, whether it's corporate direct lending or distress credit.

And the other cohort is the liquid side of private credit.

So broadly syndicated loans, as you mentioned, structured products, CLOs that falls under an asset class that's more similar to traditional fixed income.

So all the attributes you know, for traditional bonds, whether it's daily liquidity, daily mark to market pricing, public ratings, those are all the same characteristics you get in something like CLOs.

So to your point, we've seen more and more interest towards the more liquid side, particularly in the higher quality part of the segment in AAA CLOs.

I'm curious from your perspective and having conversations with CLOs and insurers, how do insurance companies think about CLOs as an asset class?

Yeah, that's certainly interesting.

And you're exactly to your point that you know, these two have public ratings.

So the focus for insurers generally tends to be on the senior tranches.

So the AAA and the AA rated tranches.

Obviously they're getting the high credit rating, they're getting potential kind of yield pickup and so on.

And also back to the point about diversification, they're possibly getting exposure to kind of a subset bank loans in this case, which they may not have, but in a sort of disciplined and structured manner with a fair amount of cushion to kind of absorb any downgrades or defaults.

So very attractive from that perspective.

The only point to note is really for, you know, these are obviously floating rate notes.

And so they don't necessarily do a lot for ALM (Asset Liability Management), especially for the life insurance portfolios unless you pair them with kind of interest rate swap or something.

But you know, for general insurance portfolios, for example, these can work as they are.

So it tends to be more of kind of a yield enhancement play and certainly sticking to kind of the more secure the higher rated areas of the structure.

Right, that makes sense.