According to credit ratings agency AM Best, a decade-long trend of insurers moderately increasing their private credit holdings continued to be seen throughout 2023, comprising 44% of the bonds held within the insurance sector, compared with approximately 27% in 2013.
A new report from AM Best reveals that insurers’ private credit holdings grew 5.7% in 2023 to nearly $1.7 trillion.
However, the annual growth was the lowest seen in at least a decade, after increasing around 10% annually from 2019-2022.
The agency explains that insurers have been investing in private credit for decades, but the type of issuer has continued to shift.
Going back to 2013, issuer obligations – lending directly to companies – accounted for nearly 78% of private credit, however following a steady decline since then, issuer obligations accounted for 59% of private credit in 2023.
AM Best notes that non-mortgage backed structured securities (non-MBS) have taken their place, holdings of which have nearly quadrupled since 2013. In fact, non-MBS accounted for almost 27% of private credit holdings in 2023, up from 16% in 2013.
This shift has also coincided with more insurers having private equity/asset managers (PE/AM) that hold controlling interests along with investment manager subsidiaries, the agency added.
Furthermore, AM Best also states that lending gaps created by traditional banking institutions stepping back have been increasingly filled by non-bank lenders such as PE/AM firms.
But, it’s important to note, that PE/AM firms are continuing to enter the U.S. life/annuity (L/A) market in a variety of ways.
Among these approaches are outright acquisitions of insurance companies to use as platforms in order to provide permanent capital and acquire additional blocks of business, as well as through minority investment or a similar arrangement, to earn fee income from managing large portions of a company’s investment portfolio.
AM Best concludes, by highlighting that over 41% of U.S. L/A insurers outsourced more than 10% of their invested assets in 2023, up marginally from 2022—but up from just under one third of companies in 2016.
