Private credit losses could hit European insurers and pension funds harder than banks, the European Central Bank (ECB) has said after simulating a “severe” shock to the market.
In its exercise, the ECB simulated a scenario of direct private credit losses; further hits from loans to software firms in correlated leveraged debt markets; and broader second-round market revaluations.
Insurers faced the biggest impact in absolute terms because of their larger, less senior exposures to private credit and equity holdings in the broader market revaluation, the ECB said. Pension funds were the most heavily affected by aggregate losses from all three stages in terms of total assets, the ECB added.
However, banks’ losses were “contained,” not exceeding 1.3% of total equity thanks to seniority of their loans to private credit funds and relatively small size of the positions, the ECB said.
According to the ECB, private credit funds in the euro area had around €100bn in AUM in 2025. Euro area insurers have about €211bn of private credit exposure, or 2.3% of total assets, with pension funds having €52bn, or 1.4% of total assets. Banks have €62.5bn, or 0.2% of total assets.
