SFA Submits Letters to NAIC on Risk-Based Capital for CLOs
article by Structured Finance Association
On April 16th the Structured Finance Association (SFA) sent a comment letter to the NAIC’s RBC Investment Risk and Evaluation Working Group (RBC IRE WG) endorsing the Academy of Actuaries’ risk-based capital methodology for broadly syndicated loan (BSL) CLO debt. The letter asked that the proposed C‑1 factors be applied only to BSL tranches for year‑end 2026 and recommended that the NAIC instruct the Academy to develop a distinct modeling approach for middle‑market (MM) CLO tranches, with any changes to MM RBC factors deferred until those tranches can be properly calibrated. It also notes that the RBC IRE WG should break out middle‑market CLOs separately from broadly syndicated loans for risk‑based capital modeling purposes.
A second letter, submitted on April 17th, responded to the NAIC’s proposed LR002 reporting blanks changes. In line with the first letter, SFA supported creating a dedicated reporting line for CLO debt but advocated limiting that new category to BSL CLO tranches for the 2026 year-end reporting cycle. The letter further notes that future updates related to MM CLOs should be reflected once the Academy’s modeling is complete and new factors are calibrated.
Key Points
- Supports adoption of the Academy of Actuaries’ model for BSL CLO tranches and apply the new C-1 RBC factors beginning with year‑end 2026 reporting.
- Recognition of the distinct risk profiles of MM CLOs compared to BSL CLOs and request a separate modeling approach before applying new RBC factors to that sector.