Overview
Moody’s Ratings expects European insurers to significantly increase their exposure to private credit in the coming years. Beinsure analyzed the report and highlighted the key points.
In 2024, these assets accounted for approximately 13% of insurer investment portfolios across Europe, based on Moody’s broad definition that includes private placements, mortgage loans, and similar instruments.
While this figure remains lower than that in the US, Moody’s forecasts accelerated growth as insurers aim to improve yields, asset-liability matching, and diversification.
Key Highlights
- European insurers held around 13% of their portfolios in private credit as of 2024. Moody’s expects this share to grow significantly, driven by the search for yield, improved liability matching, and portfolio diversification.
- UK life insurers average 18% private credit exposure, with some exceeding 40%, due to annuity-driven long-term liabilities. Dutch insurers also show high allocations (35%–40%) through residential mortgage investments.
- Solvency II treats private credit on par with public assets of similar quality. UK reforms further expand matching adjustment eligibility, allowing limited inclusion of sub-investment grade and illiquid assets.
- Infrastructure loans and direct lending remain the fastest-growing private credit segments, particularly as monetary policy eases and insurers seek long-duration, high-return assets.
- While attractive, private credit presents liquidity risks. Insurers with surrenderable policies must manage liquidity buffers carefully. Investment strategies vary widely based on firm size and internal capability.
Liability insurance structure
Liability insurance structure influences the scale of private credit allocations. UK life insurers, which offer non-surrenderable annuity products, allocate more—on average around 18%, with some exceeding 40%.
In contrast, continental European life insurers generally hold under 10%, driven by a focus on liquid savings products and profit-sharing mechanisms.
However, Moody’s identifies the Netherlands as an outlier, with some insurers allocating 35%–40% to residential mortgages to match long-duration liabilities.
Regulatory treatment under Solvency II supports this trend
Private credit assets, whether held directly or through funds, receive the same treatment as public assets of equivalent credit quality.
This approach benefits large insurers with internal capital models, while smaller or less sophisticated firms face challenges due to higher capital charges applied to securitised instruments.
These securitised structures, commonly used in the US, remain limited in Europe.
UK regulatory reforms have expanded matching adjustment eligibility to include sub-investment grade and predictable cash flow assets.
Moody’s expects this change to boost investment in infrastructure, development-stage real estate, and securitised private credit, though such investments remain capped within regulatory limits.
Insurers’ management of private credit varies based on size and focus
Larger insurers, particularly annuity writers in the UK and Europe, often handle private credit in-house through asset management subsidiaries.
Where internal capabilities are insufficient, external managers are used through separately managed accounts or pooled funds.
Smaller insurers generally rely more heavily on external managers. In certain regions, such as the Nordics, insurers access mortgage assets through affiliated banks.
Insurers intend to maintain or increase their private credit allocations
Moody’s 2025 CFO survey showed most insurers intend to maintain or increase their private credit allocations. Insurers with low exposure plan to expand allocations most, while those with high exposure focus on asset diversification.
Market-neutral insurers are also expected to grow their private credit portfolios as private markets expand faster than public ones.
The composition of these portfolios has remained stable, with key assets including residential mortgages, infrastructure loans, commercial real estate lending, private placements, and direct lending.
While insurers shifted to government bonds
Although origination slowed in 2022 amid rising interest rates, activity has increased with monetary easing. Infrastructure and direct lending are among the fastest-growing segments, driven by insurers’ demand for long-term yield.
In the UK, bulk annuity market growth supports further expansion of private credit among annuity writers.
While some insurers shifted to government bonds for risk-adjusted returns, declining rates and new origination in areas like equity release mortgages are pushing renewed interest in private credit.
Large insurers with currently low private credit allocations
On the continent, large insurers with currently low private credit allocations are expected to grow exposure, particularly through private placements and direct lending.
Emerging areas such as fund finance and private credit securitisations have seen initial interest, but capital requirements and asset-liability matching needs will likely limit broader adoption.
Only insurers with internal models to manage capital charges are positioned to expand significantly into these segments.
Moody’s anticipates new activity from property and casualty insurers, many of which currently have limited private credit exposure.
Due to their liquidity requirements, these firms are expected to target short-duration assets such as floating-rate direct loans and securitisations, which also provide inflation protection.
These investments will likely support surplus capital rather than core liabilities.
Private credit insurers liquidity risks
Despite the benefits, Moody’s notes that private credit insurers liquidity risks, especially for life insurers offering surrenderable policies.
These assets are typically illiquid, and forced sales in a stress scenario could lead to losses.
Moody’s advises insurers to maintain sufficient liquidity buffers and strong asset-liability matching to reduce this risk.
The agency maintains a positive credit view of private credit growth, observing that most reallocations are from public assets of similar credit quality.
Moody’s also notes that insurers increasing private credit exposure often have the necessary expertise in credit analysis, valuation, and risk management.
However, as the asset class becomes more complex, insurers will need to continue investing in internal capabilities. Smaller firms, or those entering specialised areas, will likely remain reliant on external managers.
FAQ
Private credit refers to non-public debt instruments such as private placements, residential and commercial mortgage loans, infrastructure lending, direct lending, and certain structured credit products.
Insurers are seeking higher yields, better asset-liability matching, and greater diversification. Private credit offers long-duration, fixed-income alternatives with attractive risk-adjusted returns compared to public bonds.
Solvency II treats private credit assets similarly to public assets of equal credit quality when held directly or through funds. This incentivizes investment, particularly by larger insurers with internal capital models.
The primary risks include illiquidity and valuation uncertainty. These risks are particularly relevant for life insurers with policies that allow early surrender, where liquidity shortfalls can lead to forced sales.
UK life insurers and Dutch insurers with long-term liabilities are among the most active. Larger firms with in-house asset management capabilities tend to manage and source private credit internally.
Smaller insurers generally rely on external asset managers via separately managed accounts or pooled funds. In regions like the Nordics, some also access mortgage assets through affiliated banking units.
Infrastructure lending and direct lending are expanding quickly, especially in the UK where bulk annuity growth and regulatory changes support greater allocation. Short-dated, floating-rate loans are gaining interest from property and casualty insurers.
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Edited by Nataly Kramer – Editor Beinsure Media
