Life insurers are substantially increasing their investment in private credit, with their exposure to illiquid fixed income assets reaching $807 billion, or 20% of the industry's $4 trillion fixed income portfolio, by the end of 2025. This marks a significant rise from $685 billion, or 18%, in 2024. Moody's Ratings warns that this structural shift carries growing risks in terms of scale, complexity, and concentration. The top 10 life insurers alone account for $352 billion, or 44%, of the industry's total private illiquid bonds, despite holding only 24% of the total industry fixed income investments. This highlights a concentrated risk within a small number of firms.
The credit quality of these illiquid portfolios is generally weaker than the broader bond holdings within the industry. For instance, 43% of the private and illiquid portfolio is rated NAIC 2 (Baa-rated) and 9% is below investment grade, compared to 36% NAIC 2 and 5% below investment grade for the overall fixed income book. This suggests that impairment rates in a downside scenario could be higher in the private credit segment. A notable trend in recent purchasing activity is a significant shift towards asset-backed securities (ABS), which represented 38% of bonds purchased in 2025, up from 27% of existing holdings, indicating a deliberate move towards more complex and less transparent instruments.
Private equity-owned life insurers, such as those affiliated with KKR and Apollo Global Management, are disproportionately driving this trend. These firms have seen their private credit allocations increase by approximately 30% over the reviewed period. This accelerated growth is also linked to a 61% increase in their annuity market share, as these new private credit investments help better match maturity and cash flow, particularly in the indexed annuity market. These partnerships between life insurers and asset managers often create complex and opaque structures designed to boost investment returns and exploit potential loopholes in rating agency methodologies and accounting standards.
Regulators are growing concerned about the increasing opacity and complexity of these private credit investments. Since the 2007-09 financial crisis, the share of life insurers' general account assets exposed to below-investment-grade corporate debt has roughly doubled, with indirect exposures through vehicles like collateralized loan obligations (CLOs) and business development companies (BDCs) reaching record levels. The National Association of Insurance Commissioners (NAIC) has adopted new guidelines, such as Actuarial Guideline 55, requiring cash-flow testing for offshore and captive reinsurers to ensure adequate reserves, as approximately $1.3 trillion of insurers' liabilities have been shifted offshore, making true valuations difficult to ascertain. Critics are calling for public access to the financial statements of these offshore and captive reinsurers to understand their reserves and ensure policyholder protection.
