Insurance Companies and the Growth of Corporate Loans' Securitization

84 Pages Posted: 9 Aug 2021 Last revised: 12 Sep 2023

See all articles by Fulvia Fringuellotti

Fulvia Fringuellotti

Federal Reserve Banks - Federal Reserve Bank of New York

João A. C. Santos

Federal Reserve Bank of New York; Nova School of Business and Economics

Date Written: August 1, 2021

Abstract

Insurance companies nonupled their CLO investments in the post-crisis period. This growth has far outpaced that of loans and bonds and is characterized by a strong preference for mezzanine tranches over triple-A tranches. Conditional on capital charges, insurance companies invest more in bonds and CLO tranches with higher yields. Importantly, they prefer CLO tranches because these carry higher yields relative to bonds. Preferences increased following the 2010 capital regulatory reform, resulting in insurance companies holding 40 percent of outstanding mezzanine tranches. Insurance companies contributed positively to CLOs’ equity returns and played a critical role in the rise of loan securitization.

Keywords: insurance companies, CLOs, regulatory arbitrage, corporate loans, securitization

JEL Classification: G11, G20, G22

Suggested Citation

Fringuellotti, Fulvia and Santos, João A. C., Insurance Companies and the Growth of Corporate Loans' Securitization (August 1, 2021). FRB of New York Staff Report No. 975, Rev. September 2023, Available at SSRN: https://ssrn.com/abstract=3899341 or http://dx.doi.org/10.2139/ssrn.3899341

Fulvia Fringuellotti (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of New York

33 Liberty Street
New York, NY 10045
United States

João A. C. Santos

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-5583 (Phone)
212-720-8363 (Fax)

HOME PAGE: http://HTTP://WWW.NEWYORKFED.ORG/RMAGHOME/ECONOMIST/SANTOS/CONTACT.HTML

Nova School of Business and Economics ( email )

Campus de Carcavelos
Rua da Holanda, 1
Carcavelos, 2775-405
Portugal

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
166
Abstract Views
781
Rank
295,975
PlumX Metrics