US life insurers’ holdings of private credit and illiquid fixed income assets have reached $807bn, representing 20% of the industry's $4trn fixed income portfolio, up from $685bn (18%) a year earlier, according to Moody’s Ratings.
Moody’s said however that concentration risk is intensifying with the top 10 insurers accounting for 44% of the industry’s $807bn in private illiquid bonds, creating significant exposure to valuation uncertainty and potential liquidity stress.
Furthermore, the ratings agency said the credit quality gap is widening.
“The illiquid portfolio has weaker credit characteristics (43% NAIC 2 (Baa), 9% below investment grade) than the broader public portfolio (36% NAIC 2, 5% below investment grade). As a result, in a downside scenario, impairment rates in the private credit segment could exceed those of the liquid portfolio.”
The shift toward asset-based lending is increasing structural complexity also. With ABS representing 38% of 2025 purchases (versus 27% of existing holdings), portfolios are migrating toward more structurally complex and less transparent instruments, introducing exposures that are harder to model and value.
