{ “title”: “Private Credit Fuels Life Insurance Growth, Moody’s Warns of Increased Risk”, “description”: “Moody’s reports on the impact of private credit on the life insurance industry, highlighting both benefits and potential risks.”, “tags”: “Life insurance, Private Credit, Moody’s, Finance, Investments”, “rewritten_content”: “## Private Credit’s Impact on Life Insurers: Growth and Risk
According to a recent report by Moody’s Ratings, the expanding role of private credit is set to further benefit US life insurers. The analysts noted that these insurers are increasingly investing in private credit to boost their investment returns, which allows for more competitive pricing on products.
The report, authored by Scott Robinson and Marc Pinto, noted that asset managers buying insurers or forming partnerships is a trend expected to continue. These managers are searching for capital to boost their dedicated funds. This trend gives life insurers, particularly those owned by asset management firms, access to their parents’ origination capabilities. Such access leads to improved investment returns, offers a competitive edge, and fuels growth.
“This yield enhancement can allow life insurers to offer more competitive pricing, for example through higher yields on annuity products,” the analysts wrote.
Moody’s projects that the private credit market could almost double to $3 trillion by 2028. The agency added that a stronger credit profile is developed when life insurers implement asset-origination platforms, but this can create more investment risk for some companies. As an example of the trend, alternative asset managers like Apollo Global Management Inc. and KKR & Co. have invested billions to buy US life insurers in recent years.
At the end of 2023, the Moody’s analysts found that private equity-backed life insurers allocated 18% of their bond investments to collateralized loan obligations and asset-backed securities. Stand-alone insurers, by comparison, held only 11% in these strategies. Although these investment-grade products have generated lower losses than public corporate securities since the 2008 financial crisis, their illiquid nature is causing regulatory concern.
However, the analysts highlighted that market conditions have changed. They emphasized the importance of a strong risk-management framework. “The market has not experienced a shock” on that scale since the 2008-2009 market downturn, Moody’s analysts stated. “Moreover, CLOs and ABS are a larger market now than in 2007-09, with higher aggregate balances exposed to future market downturns.” “}
