ICLE White Paper Finds Private Credit Does Not Increase Life-Insurer Insolvency Risk
PORTLAND, Ore. (June 8, 2026) — Life insurers that invest more heavily in private credit do not appear to be at greater risk of failure than their peers, according to a new white paper from the International Center for Law & Economics (ICLE).
Private credit has attracted growing attention from insurance regulators as life insurers have increased investments in privately negotiated loans and other private-debt assets. The paper examines whether those investments create risks beyond those already addressed by existing insurance regulations, including capital requirements, accounting rules, credit-rating oversight, and regulatory supervision.
Using annual financial data collected by the National Association of Insurance Commissioners (NAIC), authors Lawrence “Lars” Powell, director of the University of Alabama Center for Insurance Information and Research and an ICLE academic affiliate, and ICLE Senior Scholar Julian Morris analyzed life insurers’ private-credit holdings and financial condition.
Under the paper’s definition, private credit accounted for about 6% of life insurers’ general-account assets in 2025. While significant, that share remains relatively small compared with the industry’s nearly $10 trillion in total assets.
The paper’s central finding is that greater exposure to private credit is not associated with a higher risk of insurer insolvency. Using a model based on historical insurer failures and other financial indicators, Powell and Morris found no evidence that insurers with larger private-credit portfolios face greater financial weakness.
In fact, insurers with larger private-credit allocations generally appeared financially stronger than their peers. Additional analysis suggests that result likely reflects differences among insurers themselves, rather than any direct effect of private-credit investments.
“Private credit plays a constructive role in financial markets by matching long-term capital with borrowers that may not be well served by traditional bank lending or public-debt markets,” Morris said. “For life insurers, these investments can provide long-term assets, predictable cash flows, and additional returns that fit well with their long-term obligations to policyholders.”
The paper also reviews recent research suggesting that private-credit funds are generally well capitalized, use relatively little borrowing, and are less vulnerable to the kinds of funding pressures that can make banks fragile. Other studies suggest private credit can help support lending when traditional credit markets tighten.
The authors note that private credit still raises legitimate questions about valuation, transparency, data quality, connections between banks and nonbanks, private-equity ownership of insurers, and offshore reinsurance arrangements. But they argue those concerns are best addressed through targeted oversight, better data collection, and carefully tailored regulation—not broad restrictions or bank-style regulatory requirements.
The paper also examines several ongoing NAIC initiatives, including proposals related to credit-rating oversight and capital treatment for certain structured-finance assets.
“The NAIC is right to examine whether ratings, capital requirements, and reporting rules are keeping pace with market developments,” Powell said. “But reforms should be based on evidence and tailored to actual risks. Overly conservative rules could limit insurers’ access to useful investments, raise costs for policyholders, and push lending activity into less transparent parts of the financial system without improving insurer solvency.”
The paper concludes that regulators should evaluate private credit as one asset class within diversified, regulated insurance portfolios, rather than treating it as a banking substitute or a standalone threat to financial stability. It recommends focusing on transparency, data collection, supervisory coordination, and competition among market-based lenders.
The full paper can be downloaded here. To interview Powell or Morris, contact Jim Fellinger at [email protected].
About ICLE
The International Center for Law & Economics is a nonprofit, nonpartisan research center working with a roster of more than one-hundred academic affiliates and research centers from around the globe. ICLE scholars promote the use of law and economics methodologies to inform public policy debates.