Private Credit: What the Data Actually Show
TL;DR
Background: Private credit has grown rapidly over the past decade, including in life-insurer portfolios. That growth has attracted regulatory scrutiny because private assets can be harder to value and less transparent than public bonds. Life insurers, however, hold long-duration liabilities, such as annuities and whole-life policies. To match those obligations, they need long-duration assets that generate predictable cash flows. Private credit can serve that role.
But… Recent empirical analysis from the International Center for Law & Economics (ICLE) does not support claims that private credit weakens life insurers. Using National Association of Insurance Commissioners (NAIC) annual-statement data, the paper finds that private credit accounted for roughly 6% of life-insurer general-account assets in 2025. Insurers with larger private-debt allocations appear financially stronger, not weaker. The analysis also finds that greater exposure to private debt is not associated with a higher estimated risk of insolvency.
Moreover… The broader evidence suggests private credit is not simply “shadow banking” under a different name. Private-credit funds generally employ modest leverage, rely on long-term investor capital, and face limited maturity mismatch. None of this means regulators should ignore valuation challenges, data gaps, or links between banks and nonbanks. It does suggest that reforms should be targeted, evidence-based, and calibrated to actual risks, rather than driven by assumptions that private markets are inherently dangerous.
KEY TAKEAWAYS
Much Ado About 6%
The scale of private credit depends largely on how it is defined. Some estimates include broad categories of privately placed debt, including assets that share many of the transparency and liquidity characteristics of public securities.
ICLE’s analysis adopts a narrower definition, focusing on privately placed debt securities classified as direct loans and non-mortgage structured-finance instruments with private-letter ratings. Under that definition, private credit accounted for about 6% of the $9.9 trillion in life-insurer general-account assets in 2025.
Private credit also remains far from ubiquitous in the sector. More than half of insurer groups held no private credit at all. Among those that did, the typical allocation was only about 3% to 4% of assets.
Stronger, Not Weaker
ICLE’s analysis estimates each life insurer’s probability of insolvency using a discrete-time hazard model that incorporates historical insolvencies, financial ratios, leverage, profitability, organizational structure, and other indicators of financial health.
The authors then test whether insurers with larger private-debt allocations face higher estimated insolvency risk. They find no evidence that they do. In the main regression, private-debt exposure is negatively and significantly associated with estimated insolvency risk. After controlling for fixed differences among insurers, that relationship becomes statistically insignificant.
The takeaway: insurers holding more private debt are not financially weaker than their peers.
Not Your Father’s Shadow Bank
Much of the policy debate treats private credit as a bank-like, or “shadow banking,” activity. That analogy overlooks important differences.
Banks fund long-term loans with short-term deposits and other runnable liabilities, creating liquidity and maturity-mismatch risks. Life insurers, by contrast, hold long-duration liabilities and generally can hold assets to maturity. That makes them better positioned to invest in less-liquid, long-duration assets.
Private credit can therefore help insurers better match assets to liabilities, earn an illiquidity premium, and offer more competitive life-insurance and annuity products. At the same time, it does not create the same funding and liquidity risks associated with bank balance sheets.
Built Differently
Recent academic research finds that private-credit funds are generally well capitalized, use modest leverage, and avoid the maturity-mismatch risks that can make banks fragile.
Unlike banks, private-credit funds often rely on long-term equity commitments from sophisticated investors, rather than short-term funding that can disappear overnight. When losses occur, they generally fall on investors who knowingly accepted that risk, not on depositors or the public safety net.
Other studies suggest private credit can play a stabilizing role during periods of market stress. Private-credit funds often continue supplying credit when banks and broadly syndicated loan markets pull back. Taken together, the evidence counsels careful monitoring—not panic.
Fix the Blind Spots, Not the Market
Private credit raises legitimate questions about valuation practices, data quality, bank-nonbank interconnections, private-equity-owned insurers, and offshore reinsurance structures. Those issues warrant regulatory attention and ongoing supervision.
They are not, however, evidence that private credit is undermining insurer solvency. Policymakers should focus on improving disclosure, strengthening data collection, coordinating supervision, and refining risk measurement.
Broad restrictions or punitive capital charges could do more harm than good. Such measures may reduce insurers’ access to useful long-duration assets while pushing credit activity into less-transparent markets. That would make the financial system harder to monitor, not safer.
The Risk of Overreaction
The NAIC is reviewing how credit-rating provider ratings for filing-exempt and private-letter securities should translate into insurance regulatory treatment. The NAIC has also revised risk-based capital requirements for collateralized loan obligations and plans to extend that work to other asset-backed securities.
Those efforts should proceed cautiously. Any reforms should be prospective, transparent, and grounded in evidence of actual risk. Regulators should not penalize private markets simply because they are private.
The goal should be better oversight, not a regulatory overcorrection. Rules that unnecessarily restrict private-credit investments could raise costs for policyholders without improving insurer solvency.
For more on this topic, see the ICLE white paper “Private Credit and Life-Insurer Solvency: Evidence for a Calibrated Regulatory Approach” by Lawrence Powell and Julian Morris. See also R.J. Lehmann and Ian Adams’ comments to the NAIC on the proposed modified risk-based capital structure for CLOs.