US insurance regulators are increasing their scrutiny of complex structured investment products developed by private capital firms, according to a report by the Financial Times, including examining KKR and Apollo-backed vehicles.
Regulators have warned that their growing use in insurers’ balance sheets could introduce hidden risks.
Documents prepared for upcoming meetings of the NAIC, said the products have the potential to increase interconnectedness across insurers’ balance sheets, even where the underlying collateral is considered to be of relatively high quality.
Regulators have warned that the complexity of the vehicles could mask concentrations of risk and create stronger links between insurers’ investment portfolios than may be immediately apparent.
According to the report by the Financial Times, unnamed people familiar with the regulatory review have said that the NAIC working group is examining structures including Apollo’s Multi-Asset Prime Securities (AMAPS), which has been used by insurer Athene, as well as KKR-sponsored securitisation vehicles and private equity-related funds, including Thunderbird and Lightning, which have received investments from Global Atlantic.
The NAIC working group is also considering whether additional disclosure requirements should be introduced for the underlying assets held within these vehicles.
A particular focus is the possibility of “circular ownership”, where investment structures could indirectly own interests in themselves or repeatedly invest in overlapping assets, creating greater concentrations of exposure than insurers realise.
