Private Credit, Public Panic: Why Life Insurers Are Stronger Than the Headlines Suggest
Private credit has become the financial system’s latest designated villain: opaque, fast-growing, and—depending on the headline—one bad quarter away from dragging insurers, banks, and retirees down with it.
For the past two years, warnings about life insurers’ private-credit investments have become a staple of financial commentary. In 2024, the International Monetary Fund cautioned that private credit’s rapid growth and limited transparency could eventually threaten the broader financial system. Researchers at the Federal Reserve Bank of Boston examined whether the sector’s expansion poses stability risks, especially through bank credit lines to private-credit funds. Moody’s has flagged liquidity and concentration risks in insurers’ growing allocations. Axios suggested that annuities could transmit private-credit losses to ordinary households, while a Forbes columnist argued that rising defaults are already testing both banks and insurers.
The concern is not hard to understand. Life insurers hold $9.9 trillion in general-account assets against annuity and life-insurance obligations that may stretch decades into the future. Private loans do not trade on public markets, so insurers value them through models and appraisals rather than observable prices. Many also carry private ratings disclosed to the insurer but not to the market. If those valuations or ratings prove too rosy, insurers may hold less capital than their actual risks require—and the gap may surface only when policyholders expect payment.
That makes private credit a plausible source of risk. It does not make it a proven one. Whether the danger exists in practice is an empirical question, and regulators already collect the data needed to answer it.
In a recent International Center for Law & Economics (ICLE) white paper, Lars Powell and I used National Association of Insurance Commissioners (NAIC) annual-statement data to test whether life insurers with larger private-credit holdings are financially weaker than their peers. They are not.