According to Financial Times News, global private assets under management reached $13 trillion in 2023 and are projected to nearly double again by 2030. Private credit now accounts for over 35% of total US insurer investments and nearly a quarter of UK insurer assets. Bank exposure to private credit funds was estimated at $525 billion at the end of 2023, representing about 3.8% of total loans on average. The IMF’s Global Financial Stability Report highlighted these growing exposures, while UBS chair Colm Kelleher has accused insurers of “ratings shopping” and called the phenomenon “a looming systemic risk.” Moody’s analysis shows more than half of US life insurers’ Level 3 holdings carry private ratings, with their less-liquid private asset portfolio skewed toward lower-rated holdings by year-end 2024.
The insurance sector’s dangerous game
Here’s the thing that really worries me: while everyone’s watching the banks, the real action—and risk—is happening in insurance. Private equity-owned insurers have become masters at “capital efficiency,” which is basically financial speak for taking bigger risks with the same amount of money. They’re chasing those juicy illiquidity premia that private credit offers, but the whole setup depends on one crucial assumption: that the good times will keep rolling.
And that’s where it gets sketchy. We’re talking about Level 3 assets here—the kind that are priced using internal models and assumptions rather than actual market prices. When more than half of your hardest-to-value holdings rely on privately issued ratings that nobody else can scrutinize, what could possibly go wrong? It reminds me of the pre-2008 CDO madness, where everyone assumed the models were right until suddenly they weren’t.
The ratings shopping problem
UBS’s Colm Kelleher isn’t mincing words here—he’s straight-up calling out insurers for shopping around for the most favorable ratings. Think about that for a second. These are the same institutions that millions of people trust with their retirement security and life insurance policies. If they’re gaming the system to make risky investments look safer than they actually are, we’ve got a real problem.
Moody’s data shows this isn’t some theoretical concern. US insurers’ private asset portfolio was already tilting toward lower-rated stuff by the end of last year. And when Jamie Dimon starts talking about “credit cockroaches,” maybe we should listen. The JPMorgan CEO knows a thing or two about financial crises—his point about seeing one cockroach meaning there are probably more hiding is painfully accurate.
Why this matters for everyone
So why should ordinary people care about insurance companies playing fast and loose with private credit? Because when insurers take on more risk, they theoretically can offer better terms on annuities and other products. That’s the upside. But the downside? If private credit breaks, it’s not just wealthy investors who get hurt—it’s anyone counting on insurance companies to make good on their promises.
The IMF’s analysis and Moody’s research both point to a system that’s becoming increasingly interconnected and opaque. We’re building financial architecture where nobody really knows how much risk is actually in the system until it’s too late. The current market volatility should be a warning sign, not an invitation to double down on risky strategies.
Waiting for the inevitable test
Look, the scary part is that this could actually work out fine—if the economy stays strong and defaults remain low. Insurers will look like geniuses for loading up on private credit, and everyone will benefit from better returns. But that’s a massive “if.”
We’ve seen this movie before. Financial innovation always looks brilliant during the good times. It’s only when the tide goes out that we discover who’s been swimming naked. The real test for this $13 trillion private market experiment won’t come during the current expansion—it’ll come during the next credit downturn. And by then, it might be too late to do anything but clean up the mess.
