Insurance Companies Investing in Private Credit and the Shift Toward Private Markets

Private credit has become one of the most important areas of growth within institutional investing. Once viewed as a specialized segment of alternative investments, private credit is now playing a larger role in the portfolios of pension funds, endowments, family offices, asset managers, and insurance companies.

The rise of insurance companies investing in private credit reflects a broader change in how institutional capital is being allocated. As traditional fixed income markets have evolved, insurers have increasingly explored private debt strategies in pursuit of yield, diversification, and liability matching.

The NAIC has estimated that the private credit market reached approximately $1.8 trillion in 2023, reflecting in part tighter bank lending standards and increased corporate demand for non-bank financing. Growth in market size does not by itself indicate that private credit is an appropriate or attractive investment for any particular investor.

Why Insurance Companies Are Investing in Private Credit

Insurance companies have unique investment objectives. Unlike many investors, insurers must manage portfolios in relation to future policyholder obligations. Their assets are often selected with an eye toward duration, income generation, capital efficiency, and risk management.

Private credit can appeal to insurers for several reasons.

Yield Enhancement

Insurance companies often rely heavily on fixed income investments to support long-term liabilities. Private credit has historically offered higher stated yields than comparable public debt as compensation for lower liquidity, greater complexity, limited transparency, and direct credit exposure.

Those higher yields are not guaranteed and realized returns may be lower, or negative, after taking into account borrower defaults, recoveries, leverage, and fees.

Liability Matching

Life insurers in particular often manage long-duration liabilities. Private credit investments can be structured with longer maturities and predictable cash flows that may align with future policy obligations.

BlackRock has identified long-term asset and liability matching, capital-efficient yield, diversification, and shifting market dynamics as key drivers behind insurers’ increased allocations to private credit.

Portfolio Diversification

Private credit may provide exposure to borrowers, industries, and financing structures not readily available through public markets.

For insurers with large fixed income portfolios, private credit can help diversify sources of return beyond traditional corporate bonds, government securities, and securitized assets.

Life Insurers and Private Credit Growth

Life insurance companies have been among the most active participants in private credit.

Because life insurers often hold long-duration liabilities, they may be better positioned than some other insurers to allocate capital toward less liquid assets. This makes private credit a natural area of interest, provided the investment aligns with regulatory, capital, and risk management requirements.

Research from the Chicago Fed found that life insurers expanded their private credit exposure over the past decade, totaling $849 billion, or 14% of life insurer balance sheets, in 2024.

This growth reflects a broader trend: insurance portfolios are becoming more closely connected to private markets, particularly as private credit becomes a larger part of corporate financing.

Property and Casualty Insurers Have Different Constraints

While life insurers are often better suited to hold less liquid assets, property and casualty insurers face different considerations.

Property and casualty insurers must maintain liquidity to pay claims that may arise from unpredictable events such as natural disasters, litigation, or catastrophic losses. This can limit the amount of capital they can allocate to illiquid private market strategies.

Recent reporting has shown that private credit remains a smaller portion of property and casualty insurer portfolios than life insurer portfolios, though interest in private assets has increased among some major insurers.

For these insurers, portfolio construction requires careful attention to claims volatility, liquidity needs, and asset-liability management.

Common Private Credit Structures for Insurance Companies

Insurance companies may access private credit through several structures.

These may include:

• Direct lending
• Privately placed bonds
• Asset-backed lending
• Infrastructure debt
• Commercial real estate debt
• Rated feeder funds
• Collateralized fund obligations
• Loans to financial borrowers
• Private credit partnerships with asset managers

Some insurers originate or purchase private credit investments directly, while others access private credit through asset management partnerships or structured vehicles.

Legal analysis from Willkie notes that insurers may participate through bilateral loans, rated note feeder funds, or collateralized fund obligations organized by private capital managers.

The Role of Asset Managers and Insurance Platforms

The relationship between insurance companies and private capital managers has become increasingly important.

Some large alternative asset managers have acquired or partnered with insurance platforms, creating new channels for private credit deployment. These relationships can allow insurers to access private credit sourcing, underwriting, and asset management capabilities at scale.

This model has attracted attention because it connects insurance balance sheets with private market origination.

It also raises important questions about transparency, affiliated transactions, valuation practices, and regulatory oversight.

Regulatory Oversight Is Increasing

As insurance companies allocate more capital to private credit, regulators are paying closer attention.

The NAIC has highlighted several concerns related to private credit, including lower transparency, infrequent valuations, and greater pricing difficulty compared with public debt.

Recent regulatory initiatives have focused on improving visibility into insurers’ private credit holdings through enhanced reporting, additional disclosure requirements, and more detailed monitoring of complex assets.

A 2026 Debevoise overview notes that the NAIC has been working to strengthen oversight of how insurers invest in, value, and report private credit and other complex assets.

For investors, this regulatory attention is important. It signals both the growing significance of private credit and the need for disciplined risk management as the asset class expands.

Key Risks of Insurance Company Private Credit Allocations

Private credit can offer meaningful portfolio benefits, but it also introduces risks that must be carefully managed.

Liquidity Risk

Private credit investments are generally less liquid than publicly traded bonds.

For insurers, liquidity must be evaluated in relation to policyholder obligations, claims patterns, and capital requirements.

Valuation Risk

Because private loans do not trade daily in public markets, valuations may be less transparent and updated less frequently.

This can make it more difficult to assess risk in periods of market stress.

Credit Risk

Private credit still involves borrower default risk.

As more capital enters the market, underwriting discipline becomes especially important.

Complexity Risk

Certain private credit structures may involve layered fees, affiliated parties, leverage, or complex collateral arrangements.

This can increase the importance of due diligence and ongoing monitoring.

What This Means for Broader Investors

The growth of insurance companies investing in private credit reflects a larger movement toward private market investing.

As banks have pulled back from some forms of lending, private credit managers have stepped into a larger role financing middle-market companies, asset-backed transactions, infrastructure projects, and other borrowers.

For accredited investors, family offices, and RIAs, this trend is worth understanding because it demonstrates how institutional capital is increasingly seeking opportunities outside traditional public markets.

Private credit may appeal to investors seeking income generation, diversification within fixed income, and access to privately negotiated lending opportunities. While certain structured private credit instruments include features such as seniority or collateral, they do not guarantee against loss and can experience material losses, particularly during periods of economic stress, elevated defaults, or constrained liquidity.

Private Credit and the Future of Institutional Portfolios

Insurance company participation in private credit is likely to remain an important theme in institutional investing.

The asset class offers potential benefits that align with many insurer objectives, including income generation, asset-liability matching, and diversification. At the same time, its growth has increased the need for transparency, regulatory oversight, and disciplined underwriting.

For investors evaluating private credit more broadly, the insurance industry provides a useful lens into how large pools of capital approach private market opportunities.

The key takeaway is not simply that insurers are allocating more capital to private credit. It is that private credit has become a more prominent part of modern portfolio construction across institutions seeking income, diversification, and access to non-public lending markets.

To learn more about private credit, alternative fixed income, and private market investing, explore Covenant’s perspective on institutional-quality portfolio construction and long-term capital allocation.