US life insurers are extending a multi-year growth streak in institutional investment products (IIP), with funding agreement-backed notes (FABNs) reaching record issuance and more than $250bn outstanding, according to Moody’s Ratings.
The report said tight credit spreads and strong investor demand have allowed insurers to grow earnings and assets by borrowing cheaply and investing in higher-yielding assets.
FABNs became more attractive to a wider range of issuers in 2024 and 2025, and a greater share of life insurers rated A2 or lower tapped the FABN market. Still the top six FABN issuers in 2025 are rated A1 or higher.
The report also highlighted that liquidity risk is becoming the key vulnerability, as insurers increasingly rely on private credit, an asset class that offers higher yields but is inherently illiquid, to back these obligations.
On average, roughly 40% of assets supporting institutional products are now private credit, compounding the illiquidity risk if market access tightens during periods of stress.
Moody’s noted that while insurers have structurally reduced risks associated with IIPs on the liability side – removing features such as puts and better matching durations – they must still closely match the near-term (12-24 month) cash flow of the assets and liabilities associated with these products.
“With a large share of outstanding FABNs maturing between 2026-28, refinancing conditions will matter more than ever,” it stated.
