Germany’s financial regulator BaFin is reviewing the investment strategies of 30 to 40 insurance companies with unusually high exposure to alternative assets, according to AM Best’s Review.
Some insurers allocated over 30% of their portfolios to private debt, and total alternative asset holdings reached up to 70% at certain carriers.
BaFin’s press officer, Norbert Pieper, said these allocations require strong risk oversight and qualified staff with relevant expertise. This review is part of BaFin’s 2025 supervisory program.
According to BaFin’s 2025 risk report, the regulator analyzed investment behavior throughout 2024 and will continue assessing firms where deficiencies may exist. The main focus includes real estate and credit-related risks.
We have to keep an eye on these outliers. Since alternative assets are very complex, they need to have decent risk management with adequate staffing and the necessary know-how.
Norbert Pieper, a press officer with BaFin
Germany’s economy contracted 0.3% in 2023 and 0.2% in 2024, with disruptions in global trade and rising energy costs affecting export-heavy industries.
These challenges are compounded by the transition toward a carbon-neutral economy.
As economic conditions weakened, corporate insolvencies rose. BaFin reported that in Q3 2024, insolvency filings increased by 13.7% year-on-year.
Since insurers provide corporate loans, they face higher risk of credit defaults. As of December 2023, these investments made up 4.2% of insurers’ total assets.
German insurers also expanded their commercial real estate holdings, which reached nearly €164bn ($176.88bn) by mid-2024—about 8% of total invested assets.
However, office and retail property prices declined 17% from mid-2022 to Q3 2024. Residential commercial real estate fell 8% during the same period, driven by inflation, rising interest rates, and construction costs.
A survey covering insurers and life insurance undertakings found that by the end of 2023, firms had reduced the value of their commercial real estate assets by around 7%.
BaFin said insurers are generally in a position to handle risks linked to real estate due to its limited weight within overall investment portfolios.
Meanwhile, in the U.S., insurers are gaining more access to alternative assets, driven by competition—particularly in the life and annuity sectors. According to PineBridge Investments, this shift is creating pressure to find higher-yielding options.
Luke Schlafly, the firm’s global head of insurance solutions, noted that regulatory changes could significantly impact portfolio structures in 2025.
Clearly, this [redefining what constitutes a long-term bond] is a reaction to the proliferation of private and structured assets in portfolios. I think they’re trying to modernize the framework in recognition of how insurance company investments have evolved
Luke Schlafly – PineBridge Investments
He cited the National Association of Insurance Commissioners’ efforts to redefine long-term bonds as one of the most important developments.
Schlafly said this reflects how insurers have diversified into structured and private assets, and regulators are adjusting classification standards to reflect these changes.
