ICLE White Paper

Private Credit and Life-Insurer Solvency: Evidence for a Calibrated Regulatory Approach

Executive Summary

This paper tests whether life insurers’ private-credit holdings are associated with greater financial weakness or insolvency risk. Using National Association of Insurance Commissioners (NAIC) annual-statement data, we define private credit as privately placed debt securities classified as direct loans and non-mortgage structured-finance instruments with private-letter ratings. Under that definition, private credit represented roughly 6% of life-insurer general-account assets in 2025—material, but modest relative to the sector’s $9.9 trillion in assets.

We estimate life insurers’ probability of insolvency using a discrete-time hazard model based on historical insolvencies, financial ratios, leverage, profitability, organizational structure, and other solvency indicators. We then test whether insurers with larger private-debt allocations exhibit higher estimated insolvency risk. The evidence points the other way. In a pooled panel regression with year fixed effects and insurer-clustered standard errors, private-debt exposure is negatively and significantly associated with estimated insolvency risk. Insurers with larger private-debt allocations appear financially stronger, not weaker. When we add insurer fixed effects, the coefficient remains negative but is no longer statistically significant. That suggests the relationship likely reflects persistent differences across insurers rather than a causal effect of private debt. The key finding remains: insurers holding more private debt are not financially weaker than their peers, and increases in private-debt exposure within firms are not associated with higher estimated insolvency risk during the sample period.

These results align with the broader literature. Private-credit funds tend to be highly capitalized, modestly levered, and insulated from maturity mismatch, with losses borne primarily by long-horizon equity investors. Other evidence suggests private credit can support lending when traditional credit markets tighten. Regulators should therefore evaluate private credit as an asset class held within regulated insurance portfolios—not as a banking analogue or freestanding systemic-risk threat. Transparency, better data, and supervisory coordination remain important. But reforms to credit-rating oversight and risk-based capital treatment should be evidence-based, prospective, and calibrated to observed risk. Overly conservative rules could restrict useful insurer investments, reduce capital availability, and raise costs without improving solvency.

I. Introduction

Private credit has grown substantially in global capital markets over the past decade, becoming an increasingly important source of financing for middle-market firms and asset-backed investments. That growth has drawn heightened attention from policymakers, especially in the insurance sector, where life insurers have increased private-credit allocations as part of a broader evolution in portfolio strategy.

Insurance companies invest to meet obligations to policyholders. Their portfolios must align asset and liability cash flows, maintain adequate capital, and generate competitive returns. Within that framework, private credit has emerged as an economically coherent component of life-insurer portfolios.

Life insurers require a steady supply of long-duration assets to match their liabilities. Publicly rated corporate and government bonds still comprise most of life insurers’ $9.9 trillion in assets, but private credit plays a meaningful role in supporting the availability and affordability of life-insurance and annuity products.

Private-credit investments are not identified as a distinct asset class in National Association of Insurance Commissioners (NAIC) annual-statement data. Estimates therefore depend on the assumptions researchers use to identify such investments. Recent estimates range from $289 billion to $1.8 trillion, while a Federal Reserve Bank of Chicago estimate places the figure at roughly $849 billion.[1] Whatever the precise number, private-credit holdings appear material but modest relative to the life-insurance sector.[2]

Private credit is not new to U.S. life insurers. The Empire State Building, for example, was financed with a $27.5 million private loan from Metropolitan Life.[3]  We have insurer-level private-credit investment data dating back to 1997. More recent growth followed the 2008 financial crisis, when bank lending tightened and interest rates remained low for an extended period. Insurers increasingly turned to private credit for its flexibility, tailored contractual terms, and potential yield advantages.

Those features align well with insurers’ business model. Private-credit assets often provide longer duration, higher yields than comparable public bonds, and stronger contractual protections through negotiated covenants. The additional yield largely reflects an “illiquidity premium”—compensation for holding assets that cannot easily be traded. Because insurers generally hold assets to maturity, they are well positioned to capture that premium.

Much of the policy debate evaluates private credit as a standalone financial sector, often by analogy to banking or “shadow banking.” Those comparisons may be intuitive, but they are poorly suited to insurance companies. Banks rely on short-term, runnable funding and therefore face liquidity and maturity-transformation risks. Life insurers have more stable liability structures, face less withdrawal risk, and operate under comprehensive solvency, accounting, and risk-based capital frameworks.

The relevant question, then, is not whether private credit resembles banking in the abstract. It is whether private credit creates risks within regulated insurance portfolios that existing regulatory tools fail to capture. Those tools include risk-based capital requirements, the NAIC designation system, statutory accounting rules, diversification standards, ongoing supervision, financial examinations, Own Risk and Solvency Assessment (ORSA) requirements, asset-concentration limits, and governance constraints.

Recent empirical research supports this insurer-specific view. One comprehensive analysis finds that private-credit funds are far more conservatively capitalized than banks, with equity accounting for 65% to 80% of total assets, compared with roughly 10% for U.S. commercial banks. These funds—particularly closed-end direct-lending vehicles—also exhibit limited maturity mismatch, substantial equity cushions, and loss-absorption structures that differ fundamentally from deposit-funded banks and short-term wholesale-funded intermediaries.

Other evidence suggests private credit can dampen, rather than amplify, credit cycles. When traditional lending channels tighten, borrowers often substitute toward private credit, helping sustain credit availability when broadly syndicated loan markets contract.

Our empirical analysis likewise suggests that private credit does not weaken insurer financial condition. We find that the share of assets invested in private credit is positively associated with financial strength and does not increase life insurers’ probability of insolvency. We construct a financial-strength measure using historical insolvencies and predictive financial indicators, then regress that measure on insurers’ private-credit holdings, both with and without firm fixed effects.

In the specification without firm fixed effects, the coefficient estimate is negative and statistically significant. After adding firm fixed effects to control for unobserved insurer-specific characteristics, the coefficient remains negative but is no longer statistically distinguishable from zero. These estimates are observational, not causal. We therefore do not claim that private credit directly improves financial strength. Rather, insurers with greater private-credit exposure do not appear financially weaker than insurers with less exposure.

The available evidence therefore does not support the view that private credit creates risks existing insurance regulation fails to capture. Private-credit exposures generally involve relatively low leverage, limited maturity mismatch, locked-up capital, sophisticated investors, and little reliance on short-term funding. Within insurance portfolios, those risks are further constrained by capital requirements, diversification rules, statutory accounting, and supervisory oversight.

It is also important to distinguish private credit from private equity, and insurers from banks. As discussed in Section IV.C, private debt and private equity are distinct asset classes. Moreover, life insurers’ liability structure is well suited to holding illiquid private debt. The same assets can create greater risks for banks and other intermediaries that depend heavily on short-term funding.

Private credit nevertheless raises legitimate questions about valuation, connections between private-credit markets and the banking system, and the adequacy of regulatory data. These concerns warrant careful empirical evaluation. They do not justify importing bank-style assumptions into insurance regulation or treating private credit as a freestanding source of systemic risk divorced from the institutional context in which insurers hold it.

Against this backdrop, the National Association of Insurance Commissioners is developing a Credit Rating Provider (CRP) Due Diligence Framework for Filing Exempt (FE) and Private Letter (PL) securities. In doing so, the NAIC should recognize that the existing system has generally performed well. Changes to how CRP ratings for FE and PL securities map onto NAIC designations should avoid unnecessary delay, uncertainty, or barriers to investment. Poorly calibrated changes could reduce capital availability, increase borrowing costs, and shift risk toward less-transparent parts of the financial system without addressing the underlying concerns.

Regulators must also guard against excessive conservatism. The NAIC recently updated risk charges for collateralized loan obligations (CLOs) using model assumptions that appear substantially more conservative than those used for corporate bonds.[4] Yet the project was not prompted by poor historical performance. To the contrary, CLOs generally performed well, including during the financial crisis.

The NAIC intends to expand this effort to other asset-backed securities. While regulators should address emerging issues in private credit, an overly restrictive response carries its own risks. Excessively conservative capital treatment could distort capital allocation, reduce insurer participation in private-credit markets, shift credit intermediation toward less-transparent sectors, and reduce the availability and affordability of life-insurance and annuity products.

Sound policy should be grounded in the actual economic and institutional characteristics of private credit as insurers use it. This paper examines private-credit markets, the evidence on their risk and performance, their role in insurance portfolios, and the adequacy of the current regulatory framework.

The appropriate response is not to impose bank-style regulation on private credit, expand discretionary overrides, increase uncertainty around credit ratings, or impose punitive capital charges unsupported by the evidence. Policymakers should instead improve transparency, strengthen data collection, and encourage competition among market-based intermediaries. A regulatory framework tailored to the distinctive features of private credit offers a better path to preserving both financial stability and economic dynamism.

II. Private Credit and Life Insurers

Private credit is best understood not as a single, uniform market, but as a set of nonbank credit channels that serve borrowers and investors outside traditional public-debt and bank-lending markets. Two categories matter most here. The first is direct lending: loans originated by private investment funds to middle-market companies, often sponsor-backed businesses with steady cash flows but limited access to public-debt markets. The second is asset-backed finance: structured credit backed by identifiable assets or cash flows, such as credit-card receivables, aircraft leases, telecommunications infrastructure, and commercial real estate.

These categories differ in structure, transparency, liquidity, and regulatory treatment. Direct lending usually involves negotiated loans held by a small group of lenders. Asset-backed finance, by contrast, often involves securities backed by pools of underlying assets. Treating both as interchangeable forms of “private credit” can obscure important differences in how risk is created, measured, and regulated.

Private credit also should not be conflated with “shadow banking.” Shadow banking generally refers to nonbank financial intermediation that relies on leverage or short-term funding to finance longer-term assets, creating the maturity-transformation and liquidity risks associated with banking. Examples include certain money-market funds, securities-lending arrangements, and repurchase-agreement markets.

Private credit generally operates on a different model. Investor capital is often committed for extended periods, redemption rights are limited or absent, contracts are negotiated, and leverage is modest relative to banking. These features reduce the risk of funding runs, liquidity spirals, and forced asset sales. Regulatory responses designed for shadow-banking risks therefore do not map neatly onto private-credit markets, particularly when the assets are held by life insurers with long-duration liabilities.

For life insurers, the relevant question is not whether private credit has grown, but whether its growth creates risks that existing insurance regulation fails to address. That inquiry requires attention to three issues developed in this section.

First, the academic literature suggests that private credit can provide meaningful economic benefits. It may generate an illiquidity premium, improve risk-adjusted returns, allow more tailored covenant protections, and support credit availability when traditional lending markets tighten. These features are especially relevant to life insurers, which seek long-duration assets with predictable cash flows to match long-duration liabilities.

Second, the scale of insurer exposure depends heavily on how private credit is defined. Some estimates include broad categories of privately placed debt, including assets with liquidity and transparency features similar to public securities. Narrower definitions focus on private bonds and non-mortgage structured-finance instruments with private-letter ratings. Because current policy concerns center on transparency, valuation, and complexity, the definition matters. A broad estimate may overstate the private-credit exposure most relevant to the regulatory debate.

Third, the evidence does not support the claim that private-credit holdings are associated with weaker life insurers. Our empirical analysis finds that insurers with larger private-debt allocations tend to exhibit stronger financial profiles on average, and that increases in private-debt exposure within firms are not associated with higher estimated insolvency risk during the sample period. These results are observational, not causal, but they are inconsistent with the view that private credit is undermining insurer solvency.

Taken together, the evidence points toward a more disciplined policy framework. Private credit should be evaluated as an asset class held within regulated insurance portfolios, not as a freestanding source of systemic risk or a banking analogue. The proper focus is whether particular exposures create risks not already captured by risk-based capital rules, statutory accounting, diversification requirements, credit-rating oversight, financial examinations, and ongoing supervision.

A. The Economic Benefits of Private Credit

The academic literature identifies several characteristics that make private credit attractive to life insurers. These include an illiquidity premium that can improve risk-adjusted returns, contractual flexibility that facilitates asset-liability matching, and countercyclical lending behavior that helps sustain credit availability during periods of market stress. The evidence also suggests that private-credit markets are well capitalized, exhibit limited maturity mismatch, and provide meaningful benefits to borrowers.

For investors, private credit offers returns above those available from comparable liquid assets, compensating for reduced liquidity and longer holding periods. Private-credit fund managers typically invest 2% to 5% of fund capital alongside outside investors, helping align incentives between managers and investors. Gregory Brown, Christian Lundblad, and William Volckmann, using one of the most comprehensive datasets on private-fund performance to date, find “consistently positive excess returns for private credit funds across strategies and geographies.”[5]

Private credit also offers greater contractual flexibility than the broadly syndicated loan (BSL) market. BSL term loans are typically arranged by banks and distributed to a broad institutional investor base. As a result, they often feature covenant-lite structures with limited ongoing financial-maintenance protections. By contrast, middle-market private-credit facilities are generally negotiated with a concentrated lender group and include financial covenants tailored to the borrower’s circumstances.[6]

This flexibility allows lenders and borrowers to negotiate bespoke terms, including leverage step-downs, delayed-draw facilities, covenant resets, equity cures, and other accommodations designed to support long-term business plans.[7] The same concentrated lender structure can also facilitate restructurings during periods of stress by reducing coordination problems among creditors and enabling negotiated solutions such as covenant relief, maturity extensions, amortization waivers, or temporary forbearance.[8] These features help explain private credit’s popularity among private-equity-sponsored borrowers.[9]

Private credit also appears to enhance economic resilience. During the COVID-19 pandemic, when broadly syndicated loan issuance contracted sharply, private-credit lending remained comparatively stable and subsequently proved more resilient than syndicated lending markets.[10]

Recent empirical research provides strong support for this conclusion. Franz Hinzen and co-authors analyzed more than 18,000 loans across the private-credit and BSL markets and found that private-credit issuance is systematically countercyclical relative to the syndicated-loan market.[11] The two markets share a substantial and growing borrower base, with roughly 26% of firms appearing in both markets during their borrowing histories.[12] Many borrowers switch repeatedly between the two financing channels.

When conditions in the syndicated-loan market tighten—as measured by bank-lending standards, excess-bond premiums, collateralized loan obligation (CLO) issuance volumes, and related indicators—borrowers migrate to private credit in significant numbers. Importantly, this substitution appears driven by supply constraints in public lending markets rather than changes in borrower demand, indicating that private credit functions as a genuine backstop to the broader credit system.

The countercyclical effect operates primarily through the extensive margin. During periods of stress, private-credit providers absorb more borrowers, rather than simply extending larger loans.[13] The effect is especially pronounced among private-equity-sponsored firms, whose sponsors actively direct portfolio companies toward the most accessible source of financing.[14] By maintaining credit availability when syndicated-loan markets contract, private credit weakens the traditional link between bank-credit contractions and corporate financing constraints, helping support investment and employment during economic downturns.[15]

The distinction between private credit’s role in productive investment and financial speculation is also important. Private credit frequently finances equipment, facilities, research and development, working capital, and other productive business activities. Private-credit providers typically conduct extensive cash-flow analysis and operational due diligence before extending financing, helping direct capital toward economically productive uses.

The Office of Financial Research concluded in its 2025 Annual Report to Congress that financial-stability vulnerabilities associated with private credit appear limited because private lenders generally employ little leverage and rely on long-term funding structures.[16]

A major contribution to the empirical literature comes from Gregor Matvos, Tomasz Piskorski, and Amit Seru, who provide the most comprehensive analysis to date of private-credit fund balance sheets. Their study draws on proprietary data covering roughly 1,300 funds and nearly 9,000 underlying loan holdings between 2000 and 2024, representing approximately 60% to 70% of U.S. private-credit assets.[17]

Their findings directly address whether private credit replicates the structural vulnerabilities that make banks fragile. They find that private-credit funds are overwhelmingly equity financed. The mean equity-to-asset ratio is 85%, the median is 98%, and the asset-weighted ratio is 79%.[18] By comparison, U.S. commercial banks maintain an average equity-to-asset ratio of roughly 11%.[19] Even at the 25th percentile, private-credit funds remain predominantly equity financed. Where funds do borrow, they generally use bank credit lines as liquidity-management tools rather than as a source of persistent leverage.[20]

This reflects a fundamental structural distinction between private-credit funds and banks. Unlike banks, which operate with substantial leverage, private-credit funds rely primarily on long-horizon equity capital provided by institutional investors.[21] Business development companies (BDCs), the principal direct-lending vehicles, are also subject to statutory leverage limits and in practice maintained average leverage of approximately 0.91x during the first quarter of 2025.[22]

Maturity mismatch—the financing of long-duration assets with short-term liabilities—has long been viewed as a primary source of financial fragility.[23] Yet private-credit funds generally avoid this problem. Fund lives typically span 10 to 12 years, while underlying loans mature earlier.[24] Asset cash flows are therefore generally realized before the fund itself winds down. In short, private-credit funds face minimal withdrawal risk because they are financed primarily through long-term equity commitments, while fund lives generally exceed the maturity of the assets they hold.

Portfolio diversification provides a further layer of resilience. Private-credit portfolios are diversified across industries, geographies, and credit strategies, reducing exposure to correlated shocks.[25] In Matvos and co-authors’ sample, financials accounted for approximately 20.6% of total assets, followed by industrials (15.4%), health care (12.4%), and information technology (11.1%). This distribution reduces the likelihood that sector-specific shocks translate into widespread creditor distress.

Matvos and co-authors also find that realized returns are positive and relatively stable, with mean annualized net returns of approximately 9.6%. Only a small share of funds—roughly 2% to 5%—experience losses large enough to materially erode investor capital. Because equity accounts for roughly 65% to 80% of total assets, substantial losses would be required before creditors face impairment.[26] This contrasts sharply with banking, where comparatively thin equity cushions can leave institutions vulnerable to moderate asset-value declines.

Academic analysis of BDC capitalization reinforces these conclusions. Sergey Chernenko, Robert Ialenti, and David S. Scharfstein found that the median BDC reported a risk-based capital ratio of approximately 36% during the fourth quarter of 2024. By comparison, banks subject to Federal Reserve stress testing reported a median common-equity Tier 1 risk-weighted capital ratio of approximately 13%. The authors conclude that the risk of BDC insolvency appears low.[27]

Private credit also offers borrowers advantages over traditional syndicated lending. Direct lending can provide greater speed, execution certainty, and flexibility in structuring. Rather than negotiating through a large syndicate of lenders with differing incentives, borrowers can work directly with a private-credit provider offering terms tailored to the needs of a particular business.

The originate-to-hold model further strengthens incentives. Private-credit managers typically retain loans through maturity and bear the full consequences of credit-performance outcomes. By contrast, the traditional originate-to-distribute model allows lenders to package and sell loans to third parties. Because private-credit lenders retain credit risk, they have stronger incentives to underwrite conservatively, maintain appropriate covenant protections, and work constructively with borrowers during periods of financial stress.[28]

Taken together, the balance-sheet evidence and countercyclicality findings paint a coherent picture. Private-credit vehicles do not exhibit the structural features that make banks vulnerable to systemic risk, and their growth appears to have dampened rather than amplified credit-supply shocks. This represents a fundamentally different model of financial intermediation—one in which credit risk is borne primarily by long-horizon equity investors rather than short-term creditors or government-backed depositors.

B. The Scale of Private Credit in Life-Insurance Portfolios

Although private credit has been an important asset class for U.S. insurers for decades, it remains difficult to define precisely in the context of current policy debates. As a result, estimates of insurers’ private-credit exposure vary widely.

Two recent reports illustrate the challenge. S&P Global estimates that life insurers held approximately $289 billion in private credit at year-end 2024, while A.M. Best estimates roughly $1.8 trillion.[29] Such a large disparity reflects fundamentally different assumptions about what constitutes private credit.

S&P Global defines private credit using a combination of distribution method, asset category, and rating source. Its definition includes direct loans and non-mortgage structured-finance instruments carrying private-letter ratings from Nationally Recognized Statistical Rating Organizations (NRSROs). A.M. Best adopts a much broader definition that includes all privately placed debt, totaling approximately $1.8 trillion for life insurers in 2024.

The difference is substantial. A.M. Best’s estimate includes approximately $825 billion of direct loans issued through the Rule 144A institutional market, which shares many of the liquidity and transparency characteristics of Securities and Exchange Commission (SEC)-registered bonds. It also includes mortgage loans, mortgage-backed securities, and privately placed bonds outside the Rule 144A market that carry public ratings from NRSROs.

Because concerns surrounding private credit generally focus on transparency, valuation, and complexity, the narrower S&P Global definition appears better suited to the current policy discussion. Accordingly, we follow an approach similar to S&P Global and define private credit as privately placed debt securities classified as direct loans and non-mortgage structured-finance instruments with private-letter ratings.

Our analysis is necessarily limited to information reported in National Association of Insurance Commissioners (NAIC) annual-statement data.[30] Nevertheless, we believe the resulting estimates accurately capture the scale and distribution of private-credit holdings across life insurers.[31]

Figure 1 reports private-credit holdings and total general-account assets for U.S. life insurers from 2020 through 2025. During this period, private credit as a share of total assets increased from roughly 3% to 6%. Growth also appears to be moderating. Annual growth rates declined from approximately 20% in 2021 to about 6% in 2025, suggesting that many insurers may be approaching target allocations under current market conditions.

FIGURE 1: Private Credit and Total Assets, 2020-2025 ($B)

SOURCE: NAIC Annual Statement Data

NOTE: Private credit is specified in the Appendix. Total assets are general account admitted assets.

We next examine the distribution of private-credit holdings across insurers. Figure 2 reports private credit as a percentage of total general-account assets for each insurer group or unaffiliated company in 2025. Participation appears modest. More than half of insurers (192 of 342) report no private-credit holdings.

FIGURE 2: Private Credit/Total Assets Ratio, 2025

SOURCE: NAIC Annual Statement Data

NOTE: Data are presented at the insurer group level. There are 342 groups.

Among the 150 insurers that do hold private credit, exposure varies considerably. Private credit ranges from less than 0.001% of assets to nearly 28%. The mean allocation is 4.2%, the median is 3.1%, and the 95th percentile is 10.8%.

Figure 3 reports private-credit holdings in dollar terms. Holdings are concentrated among the largest insurers. The 10 largest holders account for approximately 58% of all private-credit investments, but they also hold nearly 40% of total industry assets. As a result, private credit still represents only about 6% of total assets for these firms.

The concentration becomes even more pronounced among the 50 largest holders, which account for nearly 95% of private-credit investments and 87% of industry assets. Even within this group, however, private credit represents only slightly more than 4% of total assets.

FIGURE 3: Volume of Private Credit Held, 2025 ($B)

SOURCE: NAIC Annual Statement Data

NOTE: Data are presented at the insurer group level. There are 342 groups.

The relatively modest size of private-credit allocations is consistent with insurers’ economic incentives. Life insurers have long-duration liabilities, particularly fixed annuities and whole-life policies, creating demand for long-duration assets with predictable cash flows. Private credit can help satisfy that demand by improving asset-liability matching while generating higher yields than comparable public securities.[32]

Economists at the Federal Reserve Bank of Chicago estimate that life insurers’ private-placement investments earned as much as 80 basis points more than comparable public bonds in 2024. Industry surveys likewise indicate that most major North American insurers expect to maintain or increase allocations to private markets over the coming years.[33]

These allocation decisions reflect straightforward economic considerations. Insurers face fiduciary obligations to policyholders, regulatory capital requirements, and competitive pressure to offer attractive products. Private credit can advance all three objectives by improving yields, supporting asset-liability matching, and providing access to specialized investment expertise. Conversely, an insurer that substantially reduced private-credit exposure could face lower earnings or less-competitive annuity offerings relative to its peers.

C. Private Debt Holdings and Insurer Financial Strength

This section presents new evidence on the relationship between private-debt holdings and the financial strength of life insurers. The dependent variable is an estimated probability of insolvency, while the principal explanatory variable is the ratio of private-debt holdings to total assets.[34] Consistent with the S&P Global approach, we define private debt as privately placed bonds and non-mortgage structured-finance instruments carrying private-letter ratings.

We first estimate a pooled panel regression with year fixed effects and insurer-clustered standard errors. The year fixed effects control for macroeconomic and industry-wide factors that affect all insurers simultaneously, including changes in interest rates, credit conditions, regulation, and capital-market performance. Standard errors are clustered at the insurer level to account for serial correlation and heteroskedasticity within firms over time.

The results indicate a negative and statistically significant relationship between private-debt exposure and the estimated probability of insolvency. The coefficient on the private-debt ratio is −0.013 and statistically significant at the 1% level (p = 0.002).[35] Economically, this suggests that insurers with larger allocations to private debt tend to exhibit lower estimated insolvency risk. Because the dependent variable is itself an estimated probability of failure, the results imply that insurers with greater private-debt exposure appear financially stronger on average after controlling for common year effects.

To determine whether this relationship reflects differences across insurers or changes occurring within insurers over time, we also estimate a specification with insurer fixed effects. This approach absorbs time-invariant insurer characteristics, such as business model, managerial culture, underwriting philosophy, and long-run risk appetite, such that identification comes from changes within a given insurer over time.

In this specification, the coefficient on private debt remains negative (−0.0094) but is no longer statistically significant (p = 0.342). This suggests that the relationship observed in the pooled specification primarily reflects persistent differences across insurers rather than measurable short-run changes in financial strength associated with increased private-debt exposure within a particular insurer.

Taken together, the results indicate that insurers with relatively large private-debt allocations tend to be financially stronger institutions on average. At the same time, the evidence provides little support for the proposition that increasing private-debt exposure within an insurer directly improves financial strength over short time horizons. One plausible interpretation is that financially stronger insurers are better positioned to originate, evaluate, and manage private-debt investments, rather than private debt itself mechanically improving solvency outcomes.

More broadly, the results are inconsistent with the view that greater private-debt exposure is associated with deterioration in life-insurer financial condition. If anything, the evidence suggests the opposite: insurers with larger private-debt allocations tend to exhibit stronger financial profiles, while increases in private-debt exposure within firms are not associated with higher estimated insolvency risk during the sample period.

III. Private Credit and the Existing Regulatory Framework

Private-credit funds already operate within a layered regulatory framework calibrated to the characteristics of the asset class and the sophistication of its investors. That framework includes securities regulation, investment-adviser oversight, valuation and disclosure obligations, bank-regulatory reporting, investor due diligence, and market discipline.

This section evaluates whether that framework is adequate to address the risks private credit presents. Section III.A describes the principal layers of regulation that apply to private-credit vehicles, advisers, and bank exposures to private credit. Section III.B explains why those tools generally align with the risk profile of private credit, particularly given the sophistication of the investor base, the long-term nature of committed capital, and the incentives created by manager co-investment and reputational discipline. Section III.C addresses the leading systemic-risk critiques and shows that, while concerns about valuation, data quality, and bank–nonbank interconnections merit continued supervision, the best available evidence does not support treating private credit as a banking analogue or shadow-banking equivalent.

We do not claim that all forms of private credit are equally benign or that current regulatory arrangements are optimal in every respect. The better point is narrower: direct-lending funds and insurer investments in private credit should be assessed based on their actual balance-sheet, liquidity, and governance characteristics. The policy response should therefore focus on transparency, data collection, and supervisory coordination—not bank-style prudential mandates or assumptions that private-credit ownership is inherently risky

A. The Regulatory Framework for Private Credit

Private credit is subject to a layered regulatory framework tailored to the characteristics of the asset class. Contrary to claims that private credit operates outside the regulatory perimeter, direct-lending vehicles, investment advisers, and banks that finance private-credit activities are all subject to extensive regulatory oversight, reporting requirements, and supervisory review.

The primary regulatory vehicle for direct lending is the Business Development Company (BDC). BDCs elect regulation under the Investment Company Act of 1940 and are subject to statutory asset-coverage requirements that limit leverage. In general, BDCs may operate with leverage of approximately 1:1 debt-to-equity. With approval from either shareholders or an independent board of directors, and subject to disclosure requirements, BDCs may instead operate under a 150% asset-coverage requirement, permitting leverage of up to roughly 2:1 debt-to-equity.

BDCs are also subject to substantial disclosure obligations. They publicly file periodic reports with the U.S. Securities and Exchange Commission (SEC), including Forms 10-K, 10-Q, and 8-K, and disclose detailed schedules of investments. In addition, illiquid assets must be fair-valued in good faith pursuant to the Investment Company Act and SEC Rule 2a-5. While many BDCs rely on third-party valuation firms, federal law does not require an independent valuation for every private asset.[36]

Private-credit funds that do not operate as BDCs are generally organized as private funds. Their managers are regulated primarily under the Investment Advisers Act of 1940 rather than the Investment Company Act. Advisers with sufficient regulatory assets under management generally must register with the SEC, although exemptions exist, including for advisers that exclusively manage private funds with less than $150 million in U.S. private-fund assets under management.

Registered advisers are subject to the Advisers Act’s anti-fraud provisions, fiduciary obligations, custody requirements where applicable, and Form ADV disclosure requirements. Advisers with at least $150 million in private-fund assets under management must also file confidential Form PF reports with the SEC. These reports provide regulators with detailed information regarding fund assets, investment strategies, leverage, liquidity, investor composition, performance, and financing arrangements. The SEC and Commodity Futures Trading Commission (CFTC) have proposed increasing the reporting threshold for Form PF filings to $1 billion.[37]

Private-credit activity is also subject to indirect oversight through the banking regulatory system. Banks that lend to private-credit funds report detailed information regarding those exposures to federal regulators. The largest banking organizations report private-credit exposures quarterly to the Federal Reserve through Form FR Y-14Q. Smaller institutions report comparable information through regulatory Call Reports submitted to their primary federal banking regulator.[38]

As a result, regulators have access to multiple sources of information regarding private-credit activity. Fund-level disclosures, adviser reporting requirements, and bank-regulatory filings collectively provide a significant amount of information regarding private-credit exposures, leverage, financing arrangements, and portfolio characteristics. The policy question is therefore not whether private credit is regulated, but whether the existing framework adequately addresses the specific risks associated with the asset class.

B. Existing Tools Align with Private Credit’s Risk Profile

The current regulatory framework is generally well aligned with the risks associated with private credit. Unlike retail investment products, private-credit funds are primarily financed by sophisticated institutional investors and other accredited investors capable of conducting independent due diligence and bearing investment losses. This investor base provides an important source of market discipline that complements formal regulation.

Manager incentives further reinforce this discipline. Private-credit managers typically invest 2% to 5% of fund capital alongside outside investors, aligning their interests with those of their clients. Because managers generally retain loans through maturity and suffer losses on their own capital, they have strong incentives to underwrite conservatively, monitor borrowers, and manage portfolios prudently.

Disclosure and reporting requirements provide an additional layer of oversight. Quarterly reporting obligations and asset-level valuation disclosures allow investors and regulators to monitor portfolio performance and risk exposures over time. These requirements do not eliminate concerns regarding valuation comparability, reporting lags, or uncertainty surrounding illiquid assets. They nevertheless provide substantially more information than is often assumed in discussions of private-credit markets.

Institutional investors also impose meaningful constraints. Pension funds, insurance companies, endowments, and similar institutions have fiduciary or governance obligations that encourage extensive due diligence and ongoing monitoring. Private-credit managers compete for capital based largely on performance and reputation, creating strong incentives to maintain underwriting standards and investment discipline. Poorly performing managers face reduced access to capital, while successful managers attract additional investment. This market-based accountability is often more adaptive and responsive than highly prescriptive regulatory mandates.

Regulators likewise possess considerably more information about private-credit markets than they did a decade ago. Form PF, established by the U.S. Securities and Exchange Commission (SEC) following the Dodd-Frank Act and refined over time, requires many private-fund advisers to report detailed information regarding portfolio holdings, leverage, exposures, liquidity characteristics, financing arrangements, and performance. These data support monitoring by the Financial Stability Oversight Council and other regulators responsible for assessing potential threats to financial stability.[39]

Taken together, these features suggest that private credit is not characterized by an absence of oversight. Rather, it is subject to a combination of regulatory supervision, investor monitoring, disclosure requirements, and market discipline that generally reflects the structure and risk profile of the asset class.

C. Evaluating Claims of Systemic Risk

The Office of Financial Research and several recent academic studies conclude that private credit currently poses limited systemic risk. Other institutions have expressed greater concern. The International Monetary Fund (IMF), the Federal Reserve Bank of Boston, Moody’s Analytics, and the International Organization of Securities Commissions (IOSCO) have each identified potential vulnerabilities associated with the sector’s continued growth.[40]

These concerns generally fall into four categories: valuation opacity, stale pricing, growing interconnections between private-credit funds and the banking system, and insufficient data to identify emerging risks. The IMF’s April 2024 Global Financial Stability Report, for example, warned that private credit could become a source of systemic vulnerability if it continues to expand without sufficient transparency and oversight.

Similarly, Federal Reserve researchers have documented a substantial increase in bank lending to private-credit funds. Commitments from large banks rose from less than $10 billion in 2013 to approximately $60 billion by 2024.[41] The authors note that bank lending to nonbanks can simultaneously support investment during periods of monetary tightening while also strengthening the transmission of monetary policy by increasing borrowing costs and financial-distress risk.

These concerns merit serious attention. The most comprehensive empirical evidence currently available, however, does not support the stronger claims that private credit resembles banking or shadow banking in ways that create comparable systemic vulnerabilities.

Gregor Matvos, Tomasz Piskorski, and Amit Seru find that private-credit funds generally lack the balance-sheet characteristics associated with financial fragility. Relative to banks, they operate with substantially higher levels of equity capital, limited reliance on short-term debt, and minimal maturity mismatch. Losses are borne primarily by long-horizon equity investors rather than transmitted through fragile funding structures.

The same evidence also qualifies concerns regarding bank–nonbank interconnections. Matvos, Piskorski, and Seru find that fund borrowing is generally modest and concentrated in senior-secured bank credit facilities used primarily for liquidity management, such as bridging capital calls and facilitating transaction timing. Because bank claims typically sit at the top of the capital structure, the channel through which distress at a private-credit fund could impair bank balance sheets appears comparatively narrow.[42] As the authors conclude, private credit represents “a different configuration of financial intermediation in which credit risk is allocated primarily to investors rather than to short-term creditors.”

Additional evidence suggests that private credit may dampen, rather than amplify, fluctuations in credit availability. Franz Hinzen and co-authors find that direct-lending funds act as a countercyclical backstop to the broadly syndicated loan market.[43] When traditional lending channels contract, private-credit providers expand their market share and continue supplying credit to borrowers. This finding directly challenges the claim that private credit intensifies credit-supply shocks or exacerbates the effects of monetary tightening.

It is important, however, to distinguish direct lending from other forms of nonbank finance. Iñaki Aldasoro, Sebastian Doerr, and Haonan Zhou find that certain nonbank lenders active in broadly syndicated loan markets—notably collateralized loan obligations and mutual funds—reduce lending more sharply than banks during periods of stress.[44] The countercyclical behavior documented by Hinzen and co-authors pertains specifically to direct-lending funds, whose locked-up capital structures insulate them from the redemption pressures that often drive procyclical behavior elsewhere in the nonbank sector.[45]

None of this implies that regulators should disregard private credit. Matvos, Piskorski, and Seru emphasize that current balance-sheet characteristics do not guarantee future stability. Competitive pressures could increase leverage, underwriting standards could deteriorate, and the sector has not yet been tested by a severe and prolonged macroeconomic downturn. Valuation practices, governance, and bank–nonbank linkages therefore remain appropriate subjects for ongoing supervisory attention.

At present, however, the weight of the evidence points in a consistent direction. The data do not support treating private credit as functionally equivalent to shadow banking or as a major source of systemic risk. Instead, private-credit funds appear to operate under a markedly different financial structure—one characterized by substantial equity funding, limited maturity mismatch, and relatively weak channels for transmitting losses throughout the broader financial system.

Notably, even institutions that raise concerns about private credit generally focus their recommendations on improving information available to regulators rather than imposing fundamentally new regulatory regimes. The IMF has emphasized enhanced transparency and data collection, an area in which Form PF reporting has already expanded substantially.[46] IOSCO similarly concludes that existing regulatory frameworks can address many concerns when combined with effective supervision, regulatory coordination, and information sharing.[47]

IV. Insurance Regulation and the Risk of Overcorrection

Insurance regulation is currently a major forum for some of the most consequential policy debates over private credit. The relevant question for regulators is not whether private credit is good or bad for insurers in the abstract. It is whether existing solvency, valuation, capital, and governance frameworks are properly calibrated to the risks of particular assets, structures, and ownership arrangements.

This section applies that framework to three current regulatory debates. Section IV.A examines the National Association of Insurance Commissioners’ (NAIC) proposed Credit Rating Provider (CRP) Due Diligence Framework for Filing Exempt (FE) and Private Letter (PL) securities, as well as the NAIC’s broader reconsideration of risk-based capital (RBC) treatment for structured assets. Section IV.B compares the U.S. approach with more restrictive international regimes, including the European Union’s experience under Solvency II and its later retreat from overly punitive treatment of securitized assets. Section IV.C addresses concerns about private-equity-owned insurers and offshore reinsurance structures, while distinguishing those ownership and solvency issues from private credit itself.

The throughline is straightforward: broad-brush restrictions on private credit are a poor substitute for targeted, evidence-based regulatory tools. Regulators should improve transparency, strengthen data collection, and calibrate capital treatment to observed risk. They should avoid rules that penalize private markets merely because they are private, or that restrict insurers’ access to useful assets without a clear showing of corresponding prudential benefit.

A. Reforms Should Be Evidence-Based and Prospective

Insurance regulation in the United States occurs primarily at the state level, with the National Association of Insurance Commissioners (NAIC) coordinating policy development and regulatory standards. One of the NAIC’s most significant current initiatives is the development of a Credit Rating Provider (CRP) Due Diligence Framework for Filing Exempt (FE) and Private Letter (PL) securities.[48]

The importance of this effort is difficult to overstate. More than 152,000 FE and PL securities relied on CRP ratings in 2024, and the current designation process depends heavily on CRP-provided mappings. The proposed framework would replace that direct mapping process with a four-stage review consisting of scoping, risk assessment, detailed testing, and governance.

Importantly, the proposal does not seek to determine whether individual ratings are “correct.” Rather, it focuses on evaluating rating cohorts, identifying divergence across CRPs, and assessing whether continued regulatory reliance on those ratings remains appropriate.[49] This approach is encouraging because it suggests the NAIC intends to preserve reliance on CRP ratings where alignment exists while applying additional scrutiny only where meaningful discrepancies emerge.

The risk is that implementation could impose substantial costs without generating commensurate benefits.

First, the proposed scoping process identifies insurer exposure, asset-class growth, spread outliers, limited comparability, and rating changes as factors that may trigger additional review.[50] These factors may be useful screening tools, but they should not be treated as evidence of rating inflation or elevated credit risk. As discussed above, growth in FE and PL securities may reflect insurers’ demand for long-duration, cash-flow-generating assets rather than regulatory arbitrage. Likewise, spread differentials often reflect illiquidity, bespoke documentation, call protection, origination timing, or structural complexity—not merely expected credit losses.

Second, the proposal appropriately acknowledges that private and emerging asset classes often suffer from limited historical data and inconsistent information. At the same time, it contemplates grouping test segments, relying initially on jointly rated securities, and potentially extrapolating findings from jointly rated securities to comparable single-rated securities.[51] These approaches create a meaningful risk of both false positives and false negatives.

More concerning, the proposal would initially classify segments with insufficient data or limited performance history as high risk.[52] That approach risks systematically penalizing private markets because they are private. “Insufficient data” should be treated as a distinct supervisory category requiring additional information gathering and monitoring, not as evidence that an asset class presents elevated credit risk.

Third, the framework’s remediation tools are sufficiently powerful that they should be used cautiously and only after substantial validation. Tier 2 remedies include requiring multiple ratings, modifying the translation matrix, removing FE status for an asset class, or de-authorizing a CRP.[53] Such actions could materially affect existing portfolios, capital planning, investment guidelines, market liquidity, and new origination activity.

For that reason, any Tier 2 remedy should be prospective, narrowly targeted, supported by documented evidence of material and persistent rating non-equivalence, and accompanied by appropriate transition mechanisms. Three-to-six-month implementation periods are likely inadequate. Existing holdings should generally receive grandfathering or runoff treatment.

The most prudent implementation strategy would treat the framework’s initial year as a shadow-testing period, publish statistical methodologies before live implementation, classify uncertain segments as “Insufficient Data/Review Required,” prohibit adverse treatment based solely on growth, exposure, or sparse data, require market-impact analysis before imposing Tier 2 remedies, preserve PL confidentiality protections, and provide lengthy transition periods for both new and existing investments. Implemented in this manner, the framework could strengthen confidence in CRP ratings while preserving the benefits of FE and PL treatment.

More broadly, the NAIC should recognize that the current system has generally performed well. Changes to the process by which CRP ratings map to NAIC designations should avoid creating unnecessary uncertainty, delays, or barriers to investment. Excessive uncertainty could reduce capital availability, increase borrowing costs, and shift activity toward less-transparent segments of financial markets without materially improving risk measurement.

The same principle applies to the NAIC’s ongoing review of risk-based capital (RBC) requirements. The NAIC recently revised RBC treatment for collateralized loan obligations (CLOs) using model assumptions that appear substantially more conservative than those embedded in the framework used for corporate bonds.[54] Notably, this project was not motivated by poor historical performance. To the contrary, CLOs generally performed well both historically and during the financial crisis.

As the International Center for Law & Economics has previously argued, the NAIC should separate questions of disclosure, structure, and calibration. Near-term reforms should focus on generating more comparable data and improving transparency. If capital-factor revisions are pursued, the NAIC should consider beginning with the American Academy of Actuaries’ rating-only approach, which appears simpler to implement, while using additional reporting requirements to gather further evidence before adopting more complex tranche-thickness adjustments. If tranche thickness is ultimately retained, the NAIC should avoid hard breakpoints that create cliff effects and encourage regulatory arbitrage.[55]

The NAIC intends to expand the CLO initiative to other asset-backed securities. While regulators face legitimate risks from failing to address emerging issues in private-credit markets, they also face risks from excessively conservative responses. Regulatory frameworks that rely on overly pessimistic assumptions or insufficient evidence may unnecessarily restrict insurers’ access to an important asset class, ultimately reducing the availability and affordability of life-insurance and annuity products.

B. International Experience Suggests Caution

Several foreign jurisdictions have adopted more restrictive approaches to insurer investment in private credit and securitized assets. Their experience offers a useful cautionary lesson: excessively conservative capital treatment can limit investment without necessarily producing commensurate prudential benefits.

The European Union’s Solvency II framework historically imposed capital charges on securitized assets that many observers viewed as excessively punitive.[56] As a result, European insurers maintained significantly lower allocations to securitized investments than their counterparts in the United States and Bermuda. Critics argued that the framework discouraged economically valuable investments despite a lack of evidence that many highly rated securitized assets posed risks commensurate with the capital charges imposed.

Recognizing these concerns, the European Commission later revised Solvency II to reduce barriers to insurer investment in securitizations. Among other changes, the revised framework introduced more favorable risk factors for senior non-simple, transparent, and standardized (non-STS) securitization tranches.[57] The reform reflected a growing recognition that capital requirements should be calibrated to observed risks rather than assumptions that treat all securitized assets as inherently suspect.

International standard setters have generally reached similar conclusions. In developing the Insurance Capital Standard, the International Association of Insurance Supervisors declined to adopt a simple bank-style leverage-ratio approach to insurance regulation.[58] Instead, the framework recognizes the distinctive liability structures, investment horizons, and risk characteristics of insurance companies.

Likewise, the Basel Committee on Banking Supervision has generally focused on improving transparency, data collection, and monitoring of nonbank financial intermediation rather than advocating bank-style prudential regulation for private-credit markets.[59] This approach reflects an important distinction: concerns about interconnectedness and financial stability do not necessarily imply that private-credit funds should be regulated as banks.

Taken together, these international experiences suggest that policymakers should proceed cautiously before imposing additional restrictions on insurer investment in private credit. Regulatory frameworks are most effective when they focus on improving information and accurately measuring risk, rather than relying on overly conservative assumptions that may unnecessarily restrict capital formation and investment.

C. Private Equity Concerns Are Distinct from Private Credit

A separate set of regulatory concerns involves private-equity-owned insurers and their use of less-liquid assets. By year-end 2024, the 137 U.S. insurers owned by private-equity sponsors held more than $700 billion in cash and invested assets.[60] Research suggests that private-equity-owned insurers allocate a larger share of their portfolios to higher-yielding and less-liquid assets than traditional insurers.[61]

These concerns deserve attention. They are not, however, synonymous with concerns about private credit. The relevant regulatory question is whether insurers maintain sufficient capital and liquidity to meet policyholder obligations under stress, not whether they hold a particular asset class. Regulators should ensure that all insurers—regardless of ownership structure—maintain adequate capital, manage liquidity prudently, and avoid funding arrangements that create hidden leverage or other risks to solvency.

Those objectives are best addressed through insurance solvency regulation rather than restrictions on private-credit investment. Properly designed and enforced capital requirements, liquidity oversight, and supervisory review can address risks associated with asset concentration, valuation uncertainty, and liability management without limiting insurers’ access to private-credit markets.

Similar considerations apply to offshore reinsurance arrangements, particularly those involving affiliates domiciled in jurisdictions such as Bermuda and the Cayman Islands.[62] Some private-equity-sponsored insurance groups have used offshore reinsurance structures to increase balance-sheet capacity and transfer assets to affiliated reinsurers. Whether these arrangements create material risks depends on the adequacy of solvency regulation, group-capital requirements, and supervision of affiliated transactions.

Importantly, these issues are not unique to private credit. Concerns regarding leverage, capital adequacy, affiliate transactions, and group-level risk management can arise regardless of whether an insurer invests in private credit, public bonds, real estate, or other asset classes. To the extent reforms are necessary, they should focus on group supervision, capital requirements, and the treatment of affiliated transactions rather than on restricting private-credit holdings.

The broader lesson is that policymakers should distinguish between risks arising from ownership structure and risks arising from particular investments. Conflating the two risks obscuring the actual source of potential vulnerabilities and may lead regulators to impose restrictions that do little to improve solvency while reducing insurers’ ability to invest efficiently on behalf of policyholders.

V. Conclusion

Private credit has become an important component of modern capital markets and insurance portfolios. By providing long-term financing to borrowers underserved by traditional lending channels, it expands access to capital, supports investment and economic growth, and offers insurers assets that align well with their long-duration liabilities.

The evidence reviewed in this paper does not support the view that private credit poses risks comparable to those associated with banking or shadow banking. Recent empirical research finds that private-credit funds are highly capitalized, rely only modestly on debt financing, exhibit limited maturity mismatch, and allocate losses primarily to long-horizon equity investors rather than short-term creditors. Other research finds that private credit acts as a countercyclical source of financing, expanding when traditional lending channels contract and helping stabilize credit availability during periods of stress.

Our own analysis reinforces these conclusions. Life insurers with larger private-debt allocations tend to exhibit stronger financial profiles, and increases in private-debt exposure within firms are not associated with higher estimated insolvency risk during the sample period. While these findings are observational rather than causal, they are inconsistent with the claim that private-credit holdings are undermining insurer solvency.

The policy implications are straightforward. Private credit should be evaluated as an asset class held within regulated insurance portfolios, not as a freestanding source of systemic risk. Existing regulatory tools—including risk-based capital requirements, statutory accounting rules, diversification standards, supervisory examinations, disclosure requirements, and market discipline—already address many of the risks that concern policymakers. Where improvements are warranted, they should focus on transparency, data collection, supervisory coordination, and the quality of risk measurement.

This principle is particularly important as the National Association of Insurance Commissioners considers reforms to the treatment of Filing Exempt and Private Letter securities, collateralized loan obligations, and other structured assets. Regulatory changes should be evidence-based, prospective, and calibrated to observed risks. They should not penalize private markets merely because they are private, nor should they rely on assumptions that treat all forms of nonbank intermediation as functionally equivalent to banking.

International experience points in the same direction. Jurisdictions that adopted excessively conservative treatment of securitized assets ultimately found that such approaches restricted investment and reduced capital availability without clear prudential benefits. Even institutions that have expressed concerns about private credit generally recommend improved transparency and monitoring rather than bank-style prudential regulation.

Policymakers should also distinguish between concerns arising from particular ownership structures and concerns arising from particular asset classes. Questions involving private-equity-owned insurers, offshore reinsurance arrangements, affiliate transactions, and group-level capital management may warrant continued supervisory attention. Those issues, however, are analytically distinct from private credit itself and are best addressed through solvency regulation, group supervision, and capital requirements applicable to all insurers.

More broadly, regulators should remain mindful of the waterbed effect. Capital rarely disappears in response to regulation; it moves. Restricting insurers’ access to private credit would not eliminate demand for private financing. Instead, it would likely redirect activity toward other markets, jurisdictions, or structures that may offer less transparency, weaker incentives, or shorter-term funding. Sound regulation should therefore seek to address genuine risks without undermining economically valuable forms of intermediation.

The broader lesson is that financial stability is best served by regulatory frameworks tailored to the actual characteristics of the institutions and markets they govern. Private credit, banks, insurers, hedge funds, and private-equity firms perform different economic functions, operate under different liability structures, and create different risks. Treating them all as variants of the same problem is unlikely to improve either safety or efficiency.

Private credit will continue to evolve through growth, innovation, and expanding participation by institutional investors. The appropriate response is neither complacency nor overreaction. It is careful, evidence-based oversight that addresses identifiable risks while preserving the benefits private credit provides to borrowers, investors, insurers, policyholders, and the broader economy.

APPENDIX: Private Credit Data and Estimating Financial Strength

A. Private Credit Data

We obtain insurer investment-holdings data from the National Association of Insurance Commissioners (NAIC) Annual Statement database through S&P Global. The analysis uses security-level information reported in Schedule B, Part 1; Schedule D, Part 1; and Schedule BA, Part 1. In 2025, life insurers reported 1,125,473 investments across these schedules.[63]

Consistent with the approach used by S&P Global, we define private credit as privately placed debt securities and non-mortgage structured-finance instruments with private-letter ratings. This definition focuses on the segment of private credit most relevant to current regulatory discussions regarding transparency, valuation, and credit assessment. We therefore exclude commercial and residential mortgage loans, as well as mortgage-backed securities, because regulators generally have access to substantial information regarding the underlying assets.

To identify private-credit investments, we apply three filters.

First, we identify privately issued securities using Committee on Uniform Security Identification Procedures (CUSIP) numbers. In 2025, approximately 97% of securities reported on Schedules BA and D included a CUSIP identifier.[64] CUSIPs assigned to private securities contain a special symbol (@, #, or *) in the sixth, seventh, or eighth position. Applying this filter identifies 70,305 securities with a total book value of approximately $959 billion in 2025.

Second, we identify securities carrying private-letter ratings. Private-letter ratings may involve less publicly available information than ratings issued publicly by Nationally Recognized Statistical Rating Organizations (NRSROs) or the National Association of Insurance Commissioners Securities Valuation Office (SVO). Private-letter ratings first became available in NAIC investment-schedule data in 2020, which constrains the available sample period. In 2025, life insurers reported 33,097 securities with private-letter ratings and a combined book value of $483.5 billion.

Third, we identify eligible asset classes using NAIC Annual Statement reporting categories. Because reporting categories changed substantially between 2024 and 2025, and because some categories do not appear in all years, we selected categories that most closely align with the S&P Global definition of private credit. Table A.1 reports the asset categories included in the analysis and the corresponding book values. The values reported in the table reflect the application of all three filters and therefore correspond to the private-credit totals reported in Figure 1.

TABLE A.1: Asset Type Categories Included in Private Credit ($M)

SOURCE: NAIC Annual Statement Data

B. Estimating Life-Insurer Financial Strength

To evaluate the relationship between private-credit holdings and insurer financial condition, we estimate each insurer’s probability of insolvency using a discrete-time hazard model. Insolvency is defined as the initiation of formal regulatory proceedings, including conservation of assets, rehabilitation, receivership, or liquidation.

Following Grace and Leverty (2010), Doherty et al. (2012), and Shumway (2001), we estimate the following discrete-time hazard model:

where, for insurer i and year t, I_it represents the latent propensity to fail, α is a constant term (intercept), X_it is a vector of time-varying insurer characteristics, and Σ_it is an error term clustered at the firm level.

The dependent variable equals 1 if the insurer enters formal regulatory proceedings in either year t + 1 or t + 2, and 0 otherwise. Consistent with prior insurance-solvency research, the year of insolvency is defined as the first year in which regulators initiate formal proceedings against a troubled insurer.[65]

The initial specification includes the 12 Insurance Regulatory Information System (IRIS) ratios, along with measures of insurer size, leverage, organizational form, and group affiliation.[66] We estimate the model using a variable-selection procedure that retains predictors significant at the 10% level. The resulting coefficients are then used to estimate the probability of insolvency for each insurer-year observation.

Table B.1 reports the model estimates and performance metrics. The model performs as expected. Predicted insolvency probabilities are substantially higher for insurers that subsequently enter formal regulatory proceedings than for insurers that remain solvent.

TABLE B.1: Estimate Probability of Failure with a Discrete Time Hazard Model

PANEL A: Hazard Model Results

PANEL B: Predicted Probability of Insolvency

NOTE: This table presents the results of a discrete-time hazard model for the years 1997–2025. The dependent variable is equal to one if the insurer is subject to formal regulatory proceedings for conservation of assets, rehabilitation, receivership, or liquidation in either year t+1 or t+2, and zero otherwise. There are 11,736 healthy firm-year observations and 46 insolvent company observations.

[1] S&P Global Ratings, The Rise of Private Credit in Insurers’ Investment Portfolios (2025); A.M. Best, Managing Risk Is Critical as Private Credit Holdings Increase (Special Report); Ralf Meisenzahl, Jackson Overpeck & Andy Polacek, Life Insurers’ Private Credit Investments and Annuity Market Share Capture 3–5 (Fed. Rsrv. Bank of Chi., Working Paper No. 2025-09, July 2025).

[2] See Appendix for a discussion of, and details regarding, our definition of private credit.

[3] See Empire State Realty Trust, Empire State Building: 95 Years of Iconic Moments, https://www.esbnyc.com/blog/empire-state-building-95-years-iconic-moments.

[4] Nat’l Ass’n of Ins. Comm’rs, Risk-Based Capital Investment Risk and Evaluation (E) Working Group Virtual Meeting (May 6, 2026), https://content.naic.org/sites/default/files/call_materials/RBCIREWG%2005-06-26%20Agenda%26Materials_0.pdf.

[5] Gregory Brown, Christian Lundblad & William Volckmann, Risk-Adjusted Performance of Private Funds: What Do We Know? (Inst. for Private Capital, Working Paper, Mar. 2025).

[6] See Michelle L. Iodice & Frank Oliver, Overview and Comparison of the Broadly Syndicated Loan and Private Credit Markets, Proskauer Rose LLP (Nov. 12, 2025); Sidley Austin LLP, Financial Covenants in Private Credit Transactions, Private Credit Perspectives (Mar. 24, 2026).

[7] Iodice & Oliver, supra note 6; Sneha Jha, Dan Amato & Peter G. Williams, Private Credit 2026: Trends and Developments, Chambers & Partners (Mar. 4, 2026).

[8] The distinction should not be overstated. Terms in larger private-credit transactions have converged somewhat with those in broadly syndicated loans, and covenant-lite structures have emerged in parts of the private-credit market, particularly in upper-middle-market and larger sponsor-backed deals. See Iodice & Oliver, supra note 6; Cai & Haque, supra note 9; Jha et al., supra note 7.

[9] Fang Cai & Sharjil Haque, Private Credit: Characteristics and Risks, FEDS Notes, Bd. of Governors of the Fed. Rsrv. Sys. (Feb. 23, 2024), https://doi.org/10.17016/2380-7172.3462.

[10]  Young Soo Jang, Are Direct Lenders More Like Banks or Arm’s-Length Investors? (SSRN Working Paper, Jan. 24, 2024), https://ssrn.com/abstract=4529656.

[11] Franz J. Hinzen, Paul Rintamäki, Giorgio Mondini & Sascha Steffen, The Cyclicality of Direct Lending (Working Paper, Mar. 2026).

[12] Id. at 2–5.

[13] Id. at 10–12.

[14] Id. at 15.

[15] Bengt Holmstrom & Jean Tirole, Financial Intermediation, Loanable Funds, and the Real Sector, 112 Q.J. Econ. 663 (1997); Sudheer Chava & Amiyatosh Purnanandam, The Effect of Banking Crisis on Bank-Dependent Borrowers, 99 J. Fin. Econ. 116 (2011); Michael Greenstone, Alexandre Mas & Hoai-Luu Nguyen, Do Credit Market Shocks Affect the Real Economy? Quasi-Experimental Evidence from the Great Recession and “Normal” Economic Times, 12 Am. Econ. J.: Econ. Pol’y 200 (2020).

[16] U.S. Dep’t of the Treasury, Off. of Fin. Rsch., 2025 Annual Report to Congress 23 (2025).

[17] Gregor Matvos, Tomasz Piskorski & Amit Seru, Private Credit, Balance Sheets and Financial Stability 3–4 (Nat’l Bureau of Econ. Rsch., Working Paper No. 34991, Mar. 2026, rev. Apr. 2026).

[18] Id. at 9.

[19] Id. at 10.

[20] Id. at 13.

[21] Sergey Chernenko, Robert Ialenti & David S. Scharfstein, Bank Capital and the Growth of Private Credit 8 (SSRN Working Paper No. 5097437, Jan. 2025).

[22] Loan Syndications & Trading Ass’n, BDC Quarterly Wrap: 1Q25 (2025).

[23] Douglas W. Diamond & Philip H. Dybvig, Bank Runs, Deposit Insurance, and Liquidity, 91 J. Pol. Econ. 401 (1983).

[24] Matvos, Piskorski & Seru, supra note 17, at 12.

[25] Id. at 10–11.

[26] Id. at 13.

[27] Chernenko, Ialenti & Scharfstein, supra note 21, at 14.

[28] Victoria Ivashina & Boris Vallée, Weak Credit Covenants (Nat’l Bureau of Econ. Rsch., Working Paper No. 27316, 2020) (documenting the deterioration of covenant protections in broadly syndicated loan markets).

[29] S&P Global Ratings, supra note 1; A.M. Best, supra note 1.

[30] The cited reports were prepared by nationally recognized statistical rating organizations (NRSROs) that rate securities and insurance companies. As such, they have access to security-level data beyond what insurers report in annual statements. Where our estimates differ from theirs, we defer to their more precise measurements.

[31] We define these terms with reference to National Association of Insurance Commissioners annual-statement data. See Appendix.

[32] Meisenzahl, Overpeck & Polacek, supra note 1, at 3–4.

[33] See BlackRock, BlackRock Survey: Overwhelming Majority of Insurers Plan to Increase Allocations to Private Investments (Oct. 14, 2024) (reporting that 91% of insurer respondents, including 96% of North American respondents, planned to increase allocations to private assets over the following two years, based on a survey of 410 insurance investors across 32 markets representing approximately $27 trillion in assets under management); BlackRock, BlackRock Survey: Opportunity Amid Uncertainty—Insurers Globally Embracing a More Flexible Approach (Oct. 21, 2025) (reporting that 30% of insurers planned to increase private-asset allocations, while 58% planned to maintain current allocations); Moody’s Ratings, Life Insurance—U.S.: Life Insurers Stay Bullish on Private Credit (June 17, 2025) (reporting that nearly 80% of respondents to Moody’s survey of large global insurers planned to increase holdings in at least one private-credit asset class over the long term).

[34] Details of the hazard model appear in the Appendix. The results are not sensitive to alternative definitions of private debt.

[35] Although the coefficient estimate is statistically significant, the model has limited explanatory power (R² = 0.003). As expected, the share of assets invested in private debt explains little of the variation in insurers’ financial strength.

[36] See Investment Company Act of 1940 §§ 54, 61, 15 U.S.C. §§ 80a-53, 80a-60; 17 C.F.R. § 270.2a-5; U.S. Sec. & Exch. Comm’n, Non-Publicly Traded Business Development Companies (BDCs): Investor Bulletin (Dec. 13, 2024); U.S. Sec. & Exch. Comm’n, Business Development Company (BDC) Data Sets (Oct. 2022–Apr. 2026).

[37] See Investment Advisers Act of 1940 §§ 203, 203A, 204(b), 206, 15 U.S.C. §§ 80b-3, 80b-3a, 80b-4(b), 80b-6; 17 C.F.R. §§ 275.204(b)-1, 275.206(4)-2, 275.206(4)-8; U.S. Sec. & Exch. Comm’n, Private Fund Adviser Overview (July 3, 2018); U.S. Sec. & Exch. Comm’n, Form PF: Reporting Form for Investment Advisers to Private Funds and Certain Commodity Pool Operators and Commodity Trading Advisors 1–3, 23–27, 63–65 (2025); U.S. Sec. & Exch. Comm’n, Commission Interpretation Regarding Standard of Conduct for Investment Advisers, Investment Advisers Act Release No. 5248, 84 Fed. Reg. 33,669 (July 12, 2019).

[38] See Jose Berrospide, Fang Cai, Siddhartha Lewis-Hayre & Filip Zikes, Bank Lending to Private Credit: Size, Characteristics, and Financial Stability Implications, FEDS Notes, Bd. of Governors of the Fed. Rsrv. Sys. (May 23, 2025) (explaining that loans to business development companies and private-debt funds must be reported by the largest U.S. banks on quarterly FR Y-14Q filings and that Schedule H.1 contains facility-level information on corporate loans exceeding $1 million, including committed and utilized amounts, maturity, interest rates, probabilities of default, loss-given-default estimates, and credit ratings); Fed. Deposit Ins. Corp., Bank Lending to Nondepository Financial Institutions, Banking Issues in Focus No. 1, at 3, 8–9 (Feb. 2026) (explaining that, beginning with December 2024 Call Reports, banks with more than $10 billion in assets must report lending to nondepository financial institutions in five subcategories, along with unused commitments, and that business-credit intermediaries include direct lenders, private-debt funds, and business development companies).

[39] Berrospide, Cai, Lewis-Hayre & Zikes, supra note 38; Fed. Deposit Ins. Corp., supra note 38; Managed Funds Ass’n, Press Release, New White Paper Shows Data on Private Credit Direct Lending Available to Regulators (Oct. 17, 2024), https://www.mfaalts.org/press-releases/new-white-paper-shows-data-on-private-credit-direct-lending-available-to-regulators.

[40] Int’l Monetary Fund, Global Financial Stability Report, ch. 2, The Rise and Risks of Private Credit (Apr. 2024); José L. Fillat, Mattia Landoni, John D. Levin & J. Christina Wang, Could the Growth of Private Credit Pose a Risk to Financial System Stability?, Fed. Rsrv. Bank of Bos. (May 21, 2025); Samim Ghamami, Damian Moore, Antonio Weiss, Martin Wurm & Mark Zandi, Private Credit & Systemic Risk, Moody’s Analytics (June 2025); Int’l Org. of Sec. Comm’ns, Thematic Analysis: Emerging Risks in Private Finance (Sept. 2023).

[41] Sharjil Haque, Young Soo Jang & Jessie Jiaxu Wang, Indirect Credit Supply: How Bank Lending to Private Credit Shapes Monetary Policy Transmission 38 (Fin. & Econ. Discussion Series No. 2025-059, Bd. of Governors of the Fed. Rsrv. Sys. 2025).

[42] Matvos, Piskorski & Seru, supra note 17, at 3–4, 14–16.

[43] Hinzen et al., supra note 11.

[44] Iñaki Aldasoro, Sebastian Doerr & Haonan Zhou, Non-bank Lending During Crises (Bank for Int’l Settlements, Working Paper No. 1074, Feb. 2023, rev. Aug. 2025).

[45] Hinzen et al., supra note 11.

[46] Int’l Monetary Fund, supra note 40, at 53.

[47] Int’l Org. of Sec. Comm’ns, supra note 40, at 28–32.

[48] Nat’l Ass’n of Ins. Comm’rs, Credit Rating Provider (CRP) Due Diligence Framework—Whitepaper 3–4 (May 4, 2026) [hereinafter CRP Whitepaper].

[49] Id. at 5.

[50] Id. at 9–13.

[51] Id. at 16–17.

[52] Id. at 19–20.

[53] Id. at 25–26.

[54] Nat’l Ass’n of Ins. Comm’rs, supra note 4.

[55] R.J. Lehmann & Ian Adams, ICLE Comments to the NAIC Re: CLO Modified RBC Structure with Tranche Thickness (Apr. 16, 2026), https://laweconcenter.org/resources/icle-comments-to-the-naic-re-clo-modified-rbc-structure-with-tranche-thickness.

[56] PineBridge Invs., Solvency II Revisited: Unlocking CLOs for European Insurers 3–5 (2025).

[57] Eur. Comm’n, Questions and Answers on the Solvency II Delegated Regulation (Oct. 29, 2025), https://finance.ec.europa.eu/news/questions-and-answers-solvency-ii-delegulation-2025-10-29_en (explaining that the amended Delegated Regulation “reduce[s] risk factors on both simple, transparent and standardised (STS) and non-STS securitisation” and that, for non-STS securitization, “senior tranches get a new set of more favourable risk factors”).

[58] Int’l Ass’n of Ins. Supervisors, Press Release: IAIS Adopts Insurance Capital Standard (Dec. 5, 2024).

[59] Basel Comm. on Banking Supervision, Banks’ Interconnections with Non-Bank Financial Intermediaries (Bank for Int’l Settlements, July 2025).

[60] Nat’l Ass’n of Ins. Comm’rs, Cap. Mkts. Bureau, Private Equity-Owned U.S. Insurer Investments Increased at Year-End 2024 (Aug. 2025).

[61] Kyeonghee Kim, J. Tyler Leverty & Joan T. Schmit, How Does Private Equity Impact Insurer Asset Management? (SSRN Working Paper No. 4981378, June 2025).

[62] Bermuda Monetary Auth., Insights and Reflections on Asset-Intensive Reinsurance in Bermuda (Mar. 2025); Am. Acad. of Actuaries, Issue Brief: Asset-Intensive Reinsurance Ceded Offshore (Feb. 2024).

[63] We do not include mortgage loans reported in Schedule B, Part 1, in our definition of private credit. We report them separately because some studies classify them as private credit.

[64] Mortgage loans reported in Schedule B do not have CUSIP numbers.

[65] Insurers are classified as subject to formal regulatory proceedings involving conservation, rehabilitation, receivership, or liquidation. Insolvency data come from the National Association of Insurance Commissioners’ Global Receivership Information Database (GRID).

[66] See Nat’l Ass’n of Ins. Comm’rs, Cap. Mkts. Bureau, Private Equity-Owned U.S. Insurer Investments Increased at Year-End 2024, supra note 60, for definitions of the Insurance Regulatory Information System (IRIS) ratios.