Key Takeaways
- • 57% of global insurers plan to increase private credit allocations over the next 12-24 months, with US insurers showing even stronger conviction at 65%, according to a Marsh McLennan survey of 123 insurers cited by Bloomberg—representing a dramatic shift from 32% in the firm's 2024 survey.
- • Private credit has surpassed investment-grade public fixed income as insurers' preferred asset class, with 48% planning to increase public debt allocations compared to the stronger private credit demand, signaling a structural reallocation of institutional capital.
- • Insurers acknowledge significant emerging risks including deteriorating underwriting standards, weaker lender protections, rising default rates, and increased payment-in-kind (PIK) structures, with over half of respondents citing these concerns despite their increased allocations.
- • Market headwinds are constraining valuations, with approximately two-thirds of insurers pointing to tightening spreads and declining illiquidity premiums as factors reducing private credit's relative attractiveness versus historical levels, pressuring risk-adjusted returns.
- • Retail redemption pressures have forced major alternative asset managers including Blackstone and Blue Owl Capital to restrict withdrawals from certain private credit vehicles, reflecting broader valuation concerns particularly within software-related assets.
Summary
Global insurers are significantly expanding their exposure to private credit despite a growing consensus that the asset class faces material underwriting and valuation risks. A survey by Marsh McLennan of 123 insurers worldwide reveals that 57% intend to increase private credit allocations over the next 12 to 24 months, with US insurers demonstrating even stronger appetite at 65%. This represents a substantial acceleration from the firm's 2024 survey, in which only 32% of insurers expressed intent to increase exposure—indicating a marked institutional pivot toward private markets that has accelerated materially in just two years.
The shift reflects a fundamental reordering of institutional allocations within the fixed-income space. For the first time, private credit has emerged as a preferred destination over investment-grade public fixed income, with 48% of respondents planning to increase public debt allocations compared to the stronger demand for private credit. This preference underscores continued institutional appetite for yield and relative value in a higher-rate environment, despite structural headwinds in the broader credit markets.
However, insurers' expansion into private credit occurs against a backdrop of acknowledged and intensifying risks. More than half of survey respondents cited deteriorating underwriting standards, weakening lender protections, rising default rates, and increased reliance on payment-in-kind (PIK) structures as material concerns. Approximately two-thirds of insurers also identified tightening spreads and a declining illiquidity premium as factors eroding the risk-adjusted attractiveness of private credit relative to historical levels—a critical metric for institutional investors evaluating compensation for illiquidity and concentration risk.
Recent market dynamics have underscored these concerns. Retail investors have sought to redeem capital from certain private credit funds this year amid valuation pressures, particularly affecting software-related asset holdings. In response, major alternative asset managers including Blackstone and Blue Owl Capital have implemented withdrawal restrictions on specific vehicles, signaling that liquidity expectations within portions of the private credit market may diverge materially from investor assumptions. This environment presents a complex calculus for institutional allocators: continued capital deployment into an asset class facing documented underwriting deterioration and valuation pressures, offset by yield hunger and structural demand for non-correlated returns.
The shift reflects a fundamental reordering of institutional allocations within the fixed-income space. For the first time, private credit has emerged as a preferred destination over investment-grade public fixed income, with 48% of respondents planning to increase public debt allocations compared to the stronger demand for private credit. This preference underscores continued institutional appetite for yield and relative value in a higher-rate environment, despite structural headwinds in the broader credit markets.
However, insurers' expansion into private credit occurs against a backdrop of acknowledged and intensifying risks. More than half of survey respondents cited deteriorating underwriting standards, weakening lender protections, rising default rates, and increased reliance on payment-in-kind (PIK) structures as material concerns. Approximately two-thirds of insurers also identified tightening spreads and a declining illiquidity premium as factors eroding the risk-adjusted attractiveness of private credit relative to historical levels—a critical metric for institutional investors evaluating compensation for illiquidity and concentration risk.
Recent market dynamics have underscored these concerns. Retail investors have sought to redeem capital from certain private credit funds this year amid valuation pressures, particularly affecting software-related asset holdings. In response, major alternative asset managers including Blackstone and Blue Owl Capital have implemented withdrawal restrictions on specific vehicles, signaling that liquidity expectations within portions of the private credit market may diverge materially from investor assumptions. This environment presents a complex calculus for institutional allocators: continued capital deployment into an asset class facing documented underwriting deterioration and valuation pressures, offset by yield hunger and structural demand for non-correlated returns.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.