Best’s Special Report: Asset Manager Relationships Lead Insurers’ Shift to Private Credit

A decade-long trend of insurers steadily increasing their private credit holdings continued in 2023, comprising 44% of the bonds held within the insurance industry, compared with approximately 27% in 2013, according to a new AM Best report.

The Best’s Special Report, “Asset Manager Relationships Lead Insurers’ Shift to Private Credit,” notes that insurers’ private credit holdings grew 5.7% in 2023 to nearly $1.7 trillion. The annual growth was the lowest in at least a decade, after increasing around 10% annually from 2019-2022.

The report also cites non-mortgage backed structured securities (non-MBS) such as collateralized loan obligations as a growth driver. This shift has also coincided with more insurers having private equity/asset managers (PE/AM) that hold controlling interests along with investment manager subsidiaries.

Lending gaps created by traditional banking institutions stepping back have been increasingly filled by non-bank lenders such as PE/AM firms. At the same time, PE/AM firms, some of which may originate these assets, continue to enter the U.S. life/annuity (L/A) market in a variety of ways. These approaches include outright acquisitions of insurance companies to use as platforms to provide permanent capital and acquire additional blocks of business, or through minority investment or a similar arrangement, to earn fee income from managing large portions of a company’s investment portfolio.

According to the report, over 41% of U.S. L/A insurers outsourced more than 10% of their invested assets in 2023, up marginally from 2022—but up from just under one third of companies in 2016.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=344966.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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