Moody’s forecasts further growth in German insurers’ private credit investments

Moody's Ratings expects German insurers to expand their private credit investments as they pursue higher returns, greater diversification and better matching of long-term policyholder liabilities. In a new report, the agency said these investments would create additional challenges around asset valuation, liquidity and risk management, potentially prompting greater regulatory scrutiny. Nevertheless, Moody's does not anticipate a material weakening of German insurers' credit profiles, citing established investment strategies, generally stable liabilities, strong asset-liability management and robust capital positions.

According to Moody's, based on European Insurance and Occupational Pensions Authority (EIOPA) data, illiquid assets accounted for 19.4% of German insurers' invested assets in 2025, compared with 15.8% in 2019. The proportion among life insurers rose from 19% to 25.1%. Fund-based investments in private equity, infrastructure and alternative funds represented around 15% of illiquid assets in 2025, up from 5% in 2019, although Moody's cautions that exposure may be understated because some private debt sits within broader corporate bond categories. Private credit accounted for approximately 9.3% of German insurers' total invested assets at end-2024, exceeding the European insurance average of 7.5%. Germany, France and the Netherlands together held about 72% of European insurers' combined private credit exposure, with Germany alone accounting for roughly half.

Exposure is concentrated in established categories. Mortgages and loans, including fund holdings, made up around 71% of German private credit investments, while unlisted or untraded corporate bonds represented a further 21%, totalling €92 billion at end-2024, or about 60% of the European insurance industry's exposure in that category. Moody's attributes the high allocation partly to the long-standing use of private placement instruments such as Schuldscheindarlehen and Namensschuldverschreibungen, which offer diversification and return benefits but limited secondary-market liquidity. Moody's views these established holdings as less risky than newer strategies such as middle-market lending, asset-based finance and complex structured investments.

Moody's expects overall illiquid asset growth to moderate near term as the German 10-year government bond yield, at approximately 3.5% in early October 2026 and a decade high, makes publicly traded fixed income more attractive. Higher borrowing costs have also weighed on property valuations and private equity returns, and limited exits have delayed investor distributions. Private credit exposure is nonetheless expected to keep growing, potentially faster than total illiquid holdings, largely through portfolio reallocation given subdued growth in traditional life business. Moody's also expects Germany's infrastructure, defence, energy transition and digitalisation financing needs, and Solvency II changes due in 2027, to support private capital's role.

Moody's warns that assets with limited secondary-market activity may be hard to sell during stress, and that model-based or manager-estimated valuations may not reflect underlying risk, as German accounting allows many long-term debt holdings to be carried at nominal value, acquisition cost or amortised-cost-like figures. The agency considers forced sales by German life insurers relatively unlikely given low early-surrender incentives and established asset-liability management. Smaller insurers and those using specialised strategies may rely more heavily on external managers, raising the importance of manager selection and oversight. BaFin is examining private credit risks, including limited transparency, interconnectedness and investment risk management demands. Moody's cites a 374% average Solvency II coverage ratio for German life insurers at end-2025 as a mitigating factor.