What are complex assets in insurance?

Complex assets include collateralized loan obligations (CLOs), private credit (direct lending to non-public companies), real estate debt, structured settlements, and infrastructure loans. These assets offer higher yields than traditional investment-grade bonds but are harder to value, less liquid, and may behave differently under stress. US insurers held $276.8 billion in CLOs at year-end 2024 per NAIC data, and life insurer private credit totaled $849 billion or 14 percent of balance sheets per Chicago Fed research.

Why is the NAIC updating CLO capital charges in 2026?

The current RBC framework was designed for publicly traded securities with observable market prices and does not adequately capture the risk in CLO tranches. The NAIC's CLO modeling project, developed with the American Academy of Actuaries, introduces tranche thickness as a key risk driver. Under the proposed methodology, a Baa3 CLO tranche with more than 4 percent thickness carries a 2.7 percent capital factor, while a thin tranche below 4 percent thickness carries a 12.5 percent factor. The new charges are targeted for Dec 31, 2026 implementation.

How do complex assets affect the actuary's reserve opinion?

Actuaries certify reserve adequacy through the Statement of Actuarial Opinion (SAO) under ASOP 22, which includes opining that assets backing reserves are appropriate. Complex assets make this opinion more difficult because they are harder to value independently and less liquid. Actuaries must understand the duration, convexity, credit quality, and liquidity profile of assets supporting reserves, and quantify any asset-liability mismatch risk. If assets are complex and harder to value, the actuary's professional liability associated with that opinion is heightened.

Complex Assets Backing Insurance Reserves: CLOs, Private Credit, and RBC Implications in 2026

Q: What is the risk from PE-owned life insurer allocations to complex assets?

Chicago Fed and Federal Reserve research shows that private equity-owned life insurers hold significantly higher allocations to complex assets than traditional carriers. Level 3 assets (those with no observable market price) accounted for approximately one-third of Athene's and Global Atlantic's total assets as of Q3 2025. Private credit on PE-affiliated insurer balance sheets offers roughly 80 basis points of additional yield compared to public bonds, explaining the allocation, but creates valuation and liquidity risks that the current RBC framework does not fully capture.

U.S. insurers held $276.8 billion in CLOs at year-end 2024. Life insurer private credit totaled $849 billion, or 14 percent of industry balance sheets. The NAIC's new tranche-thickness capital charge methodology is targeted for December 2026 implementation. Here is the full picture for actuaries.

The issue is straightforward in concept but deeply technical in practice: insurance companies are increasingly investing in collateralized loan obligations (CLOs), private credit, and other alternative assets to back their policy reserves. These assets offer higher yields than traditional investment-grade bonds, but they carry risks that are harder to model, less liquid, and more opaque under stress conditions.

The scale has moved from incremental to material. U.S. insurers held $276.8 billion in CLOs at year-end 2024, up approximately 2 percent from year-end 2023, according to NAIC data. Federal Reserve Bank of Chicago research found that life insurer private credit investments totaled $849 billion, representing 14 percent of life insurer balance sheets in 2024. Private equity-owned life insurers are at the forefront: Level 3 assets (those with no observable market price) accounted for approximately one-third of Athene's and Global Atlantic's total assets as of third quarter 2025, per Federal Reserve analysis.

From tracking actuarial standards development and regulatory filings over the past two years, the convergence of regulatory attention is notable: the NAIC is redesigning CLO capital charges, the American Academy of Actuaries held its inaugural Insurance Investment Summit in May 2025, and the IAIS has targeted complex assets and funded reinsurance in its 2026 global capital revamp. Actuaries who sign reserve opinions or advise on asset-liability management need to understand each layer of this picture.

$276.8B

US insurer CLO holdings at year-end 2024 (NAIC), up approx. 2% from 2023

$849B

Life insurer private credit investments, 14% of industry balance sheets in 2024 (Chicago Fed)

12.5%

Proposed NAIC capital factor for thin Baa3 CLO tranche (below 4% thickness), vs. 2.7% for thicker Baa3 tranches

What "Complex Assets Backing Reserves" Actually Means

Every insurance company holds reserves on its balance sheet to pay future claims and policy obligations. Those reserves are backed by an investment portfolio. The company invests collected premiums into assets that generate returns and remain available to pay obligations when due. Historically, the bulk of these portfolios consisted of investment-grade corporate bonds, government securities, and agency-backed paper: assets with predictable cash flows, transparent pricing, and deep liquidity in secondary markets.

What changed is the allocation to alternatives. Life insurers in particular have increased exposure, driven by the decade-long low interest rate environment that forced carriers to seek additional yield to support reserves without raising premiums. CLOs, private credit (direct lending to non-publicly-traded companies), real estate debt, structured settlements, and infrastructure loans offered that yield pickup. The difference in spread is approximately 80 basis points above equivalent-rated public bonds, according to Chicago Fed research, and that pickup is sufficient to materially affect competitive positioning in the annuity market.

The allocations have now grown to a scale that is material to the solvency question. That is not a subjective assessment; it is the regulatory consensus. The NAIC's 2026 Spring National Meeting focused substantially on CLO and complex asset capital charges. The IAIS has included complex assets and funded reinsurance in its 2026 Insurance Capital Standard calibration work. The Academy convened its first-ever Insurance Investment Summit to bring actuaries, insurance executives, and asset managers together around these risks.

Who Is Driving These Allocations

Private equity-owned life insurers are the primary driver of the complex asset allocation trend. Apollo-affiliated Athene, Blackstone-affiliated Global Atlantic, KKR-affiliated Global Atlantic (via FGL Holdings), and several other PE-backed platforms have built retirement services businesses centered on annuity products backed by high-yielding private credit portfolios.

The economic logic is straightforward. Private credit offers roughly 80 basis points of additional spread over public bonds at equivalent credit ratings. That yield advantage allows PE-backed insurers to offer more competitive annuity rates to consumers while generating stronger investment returns for the parent. Chicago Fed research found that a one standard deviation increase in financial private placement investments is associated with 0.05 percentage points of higher market share in the annuities market. The spread advantage is real, and it has translated into significant market share gains.

The risk profile is correspondingly different. Level 3 assets require mark-to-model valuations rather than mark-to-market pricing. Models for private credit fair value rely on assumptions about default rates, recovery rates, prepayment speeds, and discount rates that may not hold in a credit stress environment. When Athene and Global Atlantic each had approximately one-third of their total assets in Level 3 categories as of Q3 2025, those valuations are dependent on assumptions that regulators, actuaries, and analysts cannot independently verify with observable market data.

The Federal Reserve and other regulators have been paying attention. A 2025 Federal Reserve Board research note documented life insurers' role in the intermediation chain of public and private credit to risky firms, tracing how life insurer investments in affiliated CLOs facilitate credit flows to leveraged borrowers. Bloomberg reported on private equity's $700 billion insurance involvement and the risk concentration it creates for annuity policyholders.

The Three Risk Dimensions Regulators Are Focused On

1. Valuation Risk

Private credit positions that do not trade publicly must be valued using models. Those models involve assumptions about default rates, recovery rates in default, prepayment speeds, and appropriate discount rates. In calm markets, these assumptions are calibrated to recent history and appear reasonable. In a credit stress scenario, default rates and recovery rates may deviate substantially from model assumptions simultaneously, which is precisely the scenario the models need to handle accurately.

The deeper problem is assumption correlation. During the 2008-2009 credit crisis, the assets whose valuations held up best under stress were the ones with observable prices. Assets that relied on model valuations showed a pattern of "value discovery" during stress, where prices that appeared stable suddenly repriced downward when transactions were forced. The same dynamic applies to private credit and CLO equity tranches under adverse scenarios.

Beginning with 2026 annual statement reporting, NAIC-required disclosures on private placements and similar complex investments will be more granular. Insurers must now provide greater detail on these positions, enabling regulators and analysts to better assess valuation methodology and concentration risk. This is a direct regulatory response to the opacity that makes complex asset portfolios difficult to evaluate from the outside.

2. Liquidity Risk

If a carrier needs to sell complex assets to pay claims or policy surrenders during a stress event, the secondary market depth for these assets is fundamentally different from the secondary market for investment-grade corporate bonds. CLO tranches can trade at significant discounts to model value in a forced sale. Private credit positions may have no liquid secondary market at all.

The liquidity mismatch is most acute for annuity carriers with large blocks of fixed annuities or indexed annuities that carry surrender charges. If a carrier's assets are less liquid than its liabilities in a stress scenario, the carrier faces a liquidity gap that forces either asset sales at distressed prices or external capital raising, both of which are damaging. The actuarial analysis of this mismatch is central to the asset adequacy opinion required under ASOP 22.

The asset adequacy analysis (AAA) required of life actuaries under NAIC regulations explicitly tests for cash flow adequacy under a range of interest rate and default scenarios. When the asset portfolio includes significant complex asset positions, the stress scenarios must capture the liquidity characteristics and valuation behavior of those assets, not just apply standard bond default assumptions.

3. Risk-Based Capital Treatment: The Tranche-Thickness Methodology

The current RBC framework was designed primarily for publicly traded securities with observable market prices and credit ratings from recognized rating agencies. CLO tranches have credit ratings, but the ratings do not capture the full risk profile of the position because CLO risk depends heavily on the thickness of the tranche (how much loss absorption is above and below the investor's position in the capital structure).

The NAIC's CLO modeling project, developed in collaboration with the American Academy of Actuaries, introduces tranche thickness as a second key risk driver alongside credit rating. The methodology divides CLO positions into two categories: tranches with thickness greater than 4 percent of total CLO capitalization, and thin tranches at or below 4 percent thickness (with consideration also given to a 4.25 percent threshold).

The proposed capital factors reflect how dramatically thin tranche risk differs from standard tranche risk:

CLO Tranche Rating	Standard Factor (thickness >4%)	Thin Tranche Factor (thickness <4%)
Aaa	0.03%	0.03%
Aa	0.08%	0.08%
A2	0.14%	0.14%
A3 to Baa2	1.8-2.7%	1.8-2.7%
Baa3	2.7%	12.5%

The 12.5 percent factor for thin Baa3 tranches is striking. The standard Baa3 capital charge in the current framework is 2.73 percent; the tranche-thickness methodology would increase that to 12.52 percent for thin positions. This is a meaningful RBC impact for carriers with concentrated Baa3 CLO allocations in thin tranche structures.

Implementation is targeted for December 31, 2026. If the relevant NAIC working groups and regulators do not adopt the proposals in time, implementation will be pushed to year-end 2027. The NAIC is operating under a tight schedule to update CLO charges first, with other asset-backed securities to follow. Carriers and their actuarial teams that are currently holding large CLO allocations should be modeling the RBC impact of both the standard and thin-tranche charge scenarios.

The Actuarial Opinion: Where the Responsibility Lands

This is fundamentally an actuarial problem, not just a regulatory or investment management one. Actuaries certify reserve adequacy through the Statement of Actuarial Opinion (SAO), which is governed by ASOP 22 for life, annuity, and health insurance reserves.

ASOP 22 requires the signing actuary to opine that the reserves are adequate and that the assets backing those reserves are appropriate. If the assets are complex, harder to value independently, and less liquid than traditional fixed income, the actuary's opinion carries greater professional risk. "Appropriate" means something specific: that the actuary has evaluated the duration match between liabilities and assets, assessed the credit quality and default risk of the asset portfolio, considered the liquidity profile under stress scenarios, and evaluated whether the assets can be converted to cash to pay obligations without material loss of value.

For a carrier with 20 to 30 percent of its investment portfolio in complex assets, performing these evaluations requires either direct expertise in structured products or access to credible independent analysis that the actuary can incorporate into their opinion. The standard does not give the actuary a pass on this evaluation because the assets were selected by the investment team or because the credit ratings look acceptable.

Asset-Liability Management: Where the Actuarial and Investment Work Intersect

The actuary needs to understand the duration, convexity, credit quality, and liquidity profile of the assets supporting the reserves. If the liabilities are long-duration (life insurance, fixed annuities, pension obligations) and the assets include material positions in less-liquid CLO tranches or private credit, the mismatch risk must be quantified and disclosed in the actuarial opinion.

In the asset adequacy analysis, stress scenarios should include credit spread widening events that affect CLO tranche valuations, default rate increases that affect private credit marks, and liquidity stress that limits the ability to sell complex assets at model value. Standard scenario sets (e.g., C-3 interest rate scenarios) were not designed for these asset classes. Actuaries performing AAA on portfolios with material complex asset exposure need to supplement standard scenarios with asset-specific stress assumptions.

The Academy's Initiative and the IAIS Global Context

The American Academy of Actuaries Life Practice Council designated complex assets and RBC developments as a priority initiative based on the trend of life and annuity insurers increasing allocations to less traditional asset classes. The Academy held its inaugural Insurance Investment Summit in New York in May 2025, bringing actuaries, insurance executives, and asset managers together to better understand the risks of using complex assets to back insurance products. The 2026 event is planned with David Golub, President of Golub Capital and a central figure in private credit markets, as a keynote participant.

The Academy's analytical work on CLO capital charges directly fed into the NAIC's tranche-thickness methodology. The Academy model uses ratings as indicators of tail risk and introduces tranche thickness for lower-rated tranches as a second factor. The collaborative process between the Academy and NAIC is the professional standards system working as designed: actuaries developing the analytical framework, regulators adopting it into binding capital requirements.

Internationally, the IAIS has targeted complex assets and funded reinsurance (FundedRe) in its 2026 Insurance Capital Standard (ICS) calibration. The IAIS flagged that PE-affiliated life insurer structures, which use complex assets in offshore reinsurance arrangements to improve capital efficiency, require specific regulatory treatment. The global capital framework revamp puts pressure on structures that arbitrage the gap between economic risk and accounting capital. The NAIC's domestic response is consistent with this global regulatory direction.

What Actuaries Should Do Now

Understand the assets your company holds in detail.
Request the investment schedule from the finance team and look specifically at allocations to CLOs, private credit, real estate debt, and other alternatives. For CLO positions, identify the tranche ratings and thicknesses. Under the proposed NAIC methodology, tranche thickness is now a material input to the capital charge calculation, not just a structural detail. If you cannot locate or understand the tranche thickness data for your company's CLO holdings, you cannot assess the RBC impact of the proposed rule changes before they take effect at year-end 2026.
Build stress scenario analysis for complex asset positions.
Work with the investment and risk management teams to develop scenarios that capture the specific characteristics of complex assets: credit spread widening for CLO tranche values, default rate increases for private credit marks, and liquidity stress that limits asset sale prices. Ask specifically about sensitivity to a 200 basis point credit spread widening, a 100 to 200 basis point increase in default rates on leveraged loans, and a forced sale scenario where assets must be sold at distressed prices. These are the scenarios that test whether complex assets are truly adequate to back reserves.
Follow the NAIC CLO RBC developments actively.
The NAIC's RBC Investment Risk and Evaluation Working Group (RBCIREWG) is the primary venue for CLO capital charge development. The Academy's practice notes and issue briefs on complex assets provide the analytical foundation for what the actuarial opinion should address. Follow both as they develop. If the tranche-thickness methodology is adopted by December 2026, carriers will need to report under the new framework in their year-end 2026 annual statements, and the actuarial opinion will need to address the capital adequacy implications of the new charges.
Update the AAA stress scenarios to reflect complex asset risk.
The asset adequacy analysis required for year-end 2026 SAO opinions should incorporate complex asset behavior under stress. The standard C-3 interest rate scenarios test asset-liability duration mismatch but were not designed to test CLO tranche valuation behavior or private credit default experience under economic stress. Actuaries performing AAA on portfolios with material complex asset exposure should document how they are addressing these characteristics and why the standard scenarios do or do not capture the relevant risks adequately.

The Tail Risk Scenario

The scenario that focuses regulatory and actuarial attention is a credit downturn that causes simultaneous problems across several dimensions: leveraged loan default rates spike, which triggers CLO haircuts and potential downgrade of lower-rated tranches; private credit positions are marked down as underlying borrower distress becomes evident; liquidity evaporates in secondary CLO markets; and policy surrenders or claims accelerate at the same time as asset values fall and liquidity disappears.

Each of these elements has historical precedent. The 2008-2009 financial crisis illustrated CLO market liquidity behavior under stress. The 2020 COVID shock demonstrated how fast private credit marks can move in a sudden economic dislocation. The combination, occurring simultaneously in a prolonged credit downturn, is the tail event that life insurer complex asset portfolios need to be stress-tested against.

The current environment does not look like an imminent credit crisis. Investment-grade default rates are low, leveraged loan markets are functioning, and private credit fundraising remains strong. But the actuarial discipline is specifically about tail events: what happens in the scenarios that are not the base case? The growing allocation to complex assets means the answers to those questions matter more to insurer solvency than they did a decade ago.

The good news is that regulators are aware, the Academy is actively engaged, and the NAIC is updating its frameworks with a specific timeline. This is the system working as designed. The question actuaries should be asking is whether the updates will be fully in place before the next credit cycle tests them, and whether their company's reserve opinions currently reflect the risk profile of the assets backing those reserves.

Career Opportunity

For actuaries in life, annuities, and retirement, this is a significant professional opportunity. The skills required to navigate complex asset reserve opinions sit at the intersection of liability modeling, structured product analysis, and regulatory compliance: a combination that relatively few actuaries have developed. Asset-liability management expertise combined with understanding of CLO structures, private credit markets, and the evolving RBC framework is one of the highest-value combinations in the actuarial job market in 2026. Companies with large complex asset portfolios are actively seeking actuaries who can bridge the gap between the investment team and the regulatory obligation.

The Bottom Line

The $276.8 billion CLO position and the $849 billion in life insurer private credit are not going away. The yield advantage that drove these allocations is real, and it continues to attract capital into PE-affiliated insurance structures. What is changing is the regulatory framework for how that risk is captured in capital requirements and what the actuarial opinion must address.

The NAIC's tranche-thickness CLO capital charge methodology, targeted for December 2026 implementation, represents the most significant change to life insurer RBC treatment of structured assets since the framework was originally designed. Actuaries who have already built the expertise to navigate complex asset reserve opinions, who understand the ASOP 22 obligations in this context, and who can model the RBC implications of the new capital charge structure will be in the room for decisions that matter when these frameworks take effect.

Complex Assets Backing Insurance Reserves: CLOs, Private Credit, and RBC Implications