Key Takeaways
- • U.S. life/annuity insurers increased private credit holdings by 6% in 2024, with the level doubling over the past decade, according to an AM Best report.
- • Private placement bonds grew 6.3% to nearly $1.8 trillion in 2024, accounting for over 45% of the L/A industry's bonds.
- • Non-144a private placement holdings, which are less liquid, topped $950 billion in 2024, representing 24% of the sector's bond portfolio and 17% of invested assets.
- • Structured non-MBS securities reached 28% of private credit holdings in 2024, up from 17% in 2014, and are growing at a 13% compound annual rate versus 5% for issuer obligations.
- • Private letter rating (PLR) bonds accounted for nearly half of the industry's private credit investments, and PLR-rated bank loans carried markedly stronger credit quality than those with public ratings.
Summary
U.S. life/annuity (L/A) insurers increased their private credit holdings by 6% in 2024, with the total doubling over the past decade, according to a new AM Best report. The report attributes much of the growth to traditional bank lenders stepping back from commercial lending, a gap increasingly filled by nonbank lenders such as private equity and asset manager (PE/AM) firms. Those firms are also entering the L/A market through outright acquisitions of insurers to serve as permanent capital platforms, or through minority investments that generate fee income from managing large portions of insurers' investment portfolios, according to AM Best associate director Jason Hopper.
Private placement bonds, including securities eligible for institutional trading under SEC Rule 144a that allow issuers to avoid an initial public offering, grew 6.3% to nearly $1.8 trillion in 2024, representing over 45% of L/A industry bonds. Non-144a private placement holdings, which are less liquid, topped $950 billion, or 24% of the sector's bond portfolio and 17% of invested assets.
The composition of private credit is shifting. Direct lending to corporations remains the bulk of holdings, but structured non-mortgage-backed securities (non-MBS) are gaining share. Structured non-MBS made up 28% of private credit holdings in 2024, up from 17% in 2014, and have a compounded annual growth rate of 13% compared with 5% for issuer obligations. AM Best industry research analyst Kaitlin Piasecki said issuer obligations now make up less than 60% of private credit allocations, versus nearly 80% a decade ago. Private letter rating (PLR) bonds accounted for nearly half of industry private credit investments in 2024.
AM Best highlights a notable credit quality gap. According to the report, 54.7% of unaffiliated bank loans without a PLR were rated below investment grade, while over 70% of those with a PLR carried an investment grade rating, including 49% classified as NAIC-1. The findings underscore AM Best's view that managing risk is critical as private credit holdings increase.
Private placement bonds, including securities eligible for institutional trading under SEC Rule 144a that allow issuers to avoid an initial public offering, grew 6.3% to nearly $1.8 trillion in 2024, representing over 45% of L/A industry bonds. Non-144a private placement holdings, which are less liquid, topped $950 billion, or 24% of the sector's bond portfolio and 17% of invested assets.
The composition of private credit is shifting. Direct lending to corporations remains the bulk of holdings, but structured non-mortgage-backed securities (non-MBS) are gaining share. Structured non-MBS made up 28% of private credit holdings in 2024, up from 17% in 2014, and have a compounded annual growth rate of 13% compared with 5% for issuer obligations. AM Best industry research analyst Kaitlin Piasecki said issuer obligations now make up less than 60% of private credit allocations, versus nearly 80% a decade ago. Private letter rating (PLR) bonds accounted for nearly half of industry private credit investments in 2024.
AM Best highlights a notable credit quality gap. According to the report, 54.7% of unaffiliated bank loans without a PLR were rated below investment grade, while over 70% of those with a PLR carried an investment grade rating, including 49% classified as NAIC-1. The findings underscore AM Best's view that managing risk is critical as private credit holdings increase.
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