Why Insurance Companies Are Shifting Billions Into Hard-to-Sell Investments

The Numbers

U.S. life insurance companies are putting much more of their money into private placements — loans and bonds that are not traded on public markets. The Federal Insurance Office reported that these private placements made up 14 percent of what life insurers held in 2024, up from 10 percent in 2014. That is a 40 percent jump over ten years.

Globally, the picture is starker. Private assets now represent more than one third of the USD 40 trillion that insurance companies worldwide hold on their balance sheets, according to Lombard Odier.

This is no longer a side bet. It is now how the insurance industry operates.

What Are Private Placements?

A private placement is a loan or bond sold directly to a bank or investment firm, not to the general public. It is not traded on an exchange. There is no daily price. If you own one and need to sell it fast, you probably cannot.

Insurance companies buy these because they offer a higher interest rate — what experts call an "illiquidity premium" — in exchange for the money being locked away for years. This suits insurers because their promises to policyholders (like annuities) are also long-term. They need assets that match those time horizons.

But private placements are only part of the story. Insurance companies are also investing in private equity funds, real estate loans, infrastructure projects, and direct lending deals. The Bank for International Settlements noted in September 2024 that insurers and private equity firms together had loaded up on riskier and less liquid bets.

The practical constraint is lock-up periods. StepStone Group's March 2026 analysis shows that these private assets often cannot be touched for ten years or longer. That creates a real problem: policyholders do not always wait ten years to pull their money out. When financial stress hits, surrenders spike — and that is exactly when these assets are hardest to sell.

The Ownership Question

The structure gets more complicated when private equity firms own the insurance companies. Insurers invest in private equity funds. Private equity firms own insurers. The National Association of Insurance Commissioners has documented this directly.

When a private-equity-owned insurer invests in private equity funds — sometimes ones run by the same firm that owns them — you have to ask: who benefits most? The policyholders? The insurance shareholders? Or the private equity managers collecting fees? The balance sheet alone does not always tell you the answer.

This problem gets bigger when insurance companies also manage money for outside clients. Prudential's investment unit PGIM manages USD 1 trillion, per Reuters. That spreads costs and generates fee income — which is smart business. But it also means the same firm is managing both its own money and client money chasing the same deals. That raises questions about fair dealing and whose interests come first.

Why This Happened

For a decade after the 2008 financial crisis, the Federal Reserve kept interest rates near zero. Bonds that were safe and easy to trade paid almost nothing. Insurance companies could not earn enough to keep their promises to customers, so they chased higher returns in private deals.

The rate rises after 2022 changed the math for public bonds. But they did not reverse the private asset trend. Private loans now pay more, and they are still harder to sell — which means the extra interest premium stayed attractive. On paper, at least.

The broader context here is worth flagging: we have seen this before. In the late 1980s and early 1990s, U.S. life insurers poured money into commercial real estate and high-yield bonds to boost returns when they were facing cutthroat competition. When the economy soured, policyholders rushed to withdraw their money. Assets that looked fine over a ten-year horizon became toxic when forced sales were necessary in year three or four. Insurance companies like Executive Life and Mutual Benefit Life failed partly for this reason. The dynamics then and now are not identical, but the parallel is uncomfortable.

What Regulators Are Watching

Insurance regulation in the U.S. is split across 50 states, which creates blind spots. The Federal Insurance Office does not run the day-to-day inspections, but it does track systemic risk — and a trillion-plus dollars of hard-to-sell assets on life insurer balance sheets qualifies.

The specific worry is not that private placements are bad for insurance companies with long-term promises to keep. The issue is darker: valuation opacity (it is hard to know what these assets are actually worth), concentration risk (affiliated managers control too much of the decision-making), and what happens when stress forces a supposedly long-term asset into a fire sale.

One-third of global insurance company assets in private markets is a number that will draw hard scrutiny from the Financial Stability Board, the International Association of Insurance Supervisors, and national regulators through 2026 and beyond.

What Matters Next

Three things will signal whether this shift is safe or risky. First, watch default rates in private credit. If borrowers start failing to pay or asking to pay in stock instead of cash, those losses will show up quickly in insurer earnings — quicker than they appear in regulatory capital ratios, because private asset values are reported slowly.

Second, regulators will likely demand new disclosure rules or stricter capital charges for these affiliated investment arrangements. The NAIC is already working on this.

Third, and most important: watch policyholder behavior. If economic stress hits or interest rates on plain-vanilla savings accounts spike, people may rush to withdraw from insurance products. That is when a portfolio of illiquid private assets becomes a crisis. Insurance companies have mostly thought through these scenarios on a spreadsheet. They have not tested them in a real market meltdown with this much of their money locked away.

The shift is real and now deeply embedded in how insurance companies operate. Whether they have built the safeguards to match the risk is a question the next downturn will answer.