According to Moody’s Ratings, US life insurance companies have significantly increased their participation in the private credit market in recent years.
This shift is primarily driven by partnerships with alternative asset managers (AMs), who have brought substantial expertise and capital to the sector.
As a result, insurers have gained access to a wide array of private credit investments, which offer potential returns that are higher than those available through traditional market investments.
Moody’s highlights that these partnerships have allowed insurers to acquire assets with greater efficiency and at lower costs, particularly in the investment-grade segment of the market.
The growth of the private credit sector has been impressive, with its assets under management (AUM) estimated to reach $1.7 trillion by the end of 2023, a significant increase from $0.8 trillion in 2018. Moody’s 2025 Outlook anticipates that this market could double by 2028.
This growth has been spurred by factors such as tighter banking regulations post-financial crisis, low interest rates over an extended period, and the growing appetite of investors for higher-yield opportunities. Insurers have been keen to tap into this growth, as private credit offers benefits such as lower asset volatility, more deal certainty, and readily available capital.
The involvement of AMs has been a key driver of this expansion. Leading asset managers like Apollo, Brookfield, KKR, and Blackstone have increasingly entered the insurance market, often acquiring minority or controlling stakes in life insurance companies.
Moody’s notes that these acquisitions and partnerships provide AMs with access to long-term, “permanent” capital, which is well-suited to the long-term investment strategies typically used by life insurers. The presence of AMs has also enhanced the returns generated by insurers, especially through asset origination platforms. These platforms allow insurers to acquire assets without the need to build their own origination infrastructure, which can be costly and time-consuming.
However, while these investments offer greater returns, they also introduce higher risks, particularly concerning liquidity and credit. AM-backed life insurers are increasingly holding a larger share of structured assets, including private credit, collateralised loan obligations (CLOs), and asset-backed securities (ABS).
These assets can offer higher yields, but they also come with the potential for greater volatility and illiquidity. In particular, Moody’s cautions that the increased allocation to illiquid investments could expose insurers to significant risks during times of financial distress, especially if policyholders seek to withdraw funds.
Furthermore, the growth of AM-backed life insurers has led to a higher concentration of investment-grade private credit assets in their portfolios.
These insurers often structure below-investment-grade assets into higher-rated investment products, such as CLOs and ABS, in order to mitigate some of the associated risks.
This trend has become more pronounced in recent years, with AM-backed insurers dedicating a larger portion of their investments to these structured products compared to their traditional counterparts. Moody’s reports that by the end of 2023, approximately 18% of the investments of AM-backed insurers were in CLOs and ABS, compared to 11% for other life insurers.
Despite the potential for higher returns, Moody’s emphasises that risk management remains crucial. The traditional, conservative buy-and-hold approach of life insurers has been challenged by the growth of private credit assets and the increasing influence of AMs in the sector.
In times of economic downturn, the demand for certain insurance products may decline, which could affect the liquidity of private credit assets. If insurers rely too heavily on these assets, they risk facing difficulties in managing their liabilities. However, Moody’s suggests that insurers with well-balanced portfolios and strong risk management practices will be better positioned to weather such challenges.
Regulatory bodies, including the National Association of Insurance Commissioners (NAIC), are becoming more involved in monitoring insurers’ investment strategies, particularly as exposure to private credit and other alternative investments grows.
In response to these concerns, the NAIC has been updating its regulatory framework to ensure that insurers are managing their portfolios in a way that mitigates risks, especially those associated with illiquidity.
Moody’s observes that while regulators are becoming more focused on the risks of illiquid investments, private credit markets still offer valuable opportunities for insurers, particularly in terms of portfolio diversification and the ability to access unique asset classes.
Overall, the relationship between life insurers and alternative asset managers is set to continue to evolve, with AMs increasingly influencing the private credit market.
Moody’s anticipates that this synergy will strengthen, particularly as insurers gain greater access to asset origination platforms.
While the benefits are clear, managing the associated risks, especially liquidity, credit, and asset-liability management, will remain essential for insurers to maintain the stability and profitability of their portfolios in the long run.
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