The Numbers Are Significant

The U.S. Treasury's Federal Insurance Office released its 2025 Annual Report with clear data: private placements — loans made directly to insurance companies instead of through public bond markets — now account for 14 percent of life insurers' general account assets in 2024, up from 10 percent in 2014. That is a 40 percent increase over ten years.

Globally, the trend is even larger. Private assets now represent over one third of more than $40 trillion in assets held by insurance companies worldwide as of end-2024, according to Lombard Odier.

This shift is no longer a small portfolio choice. It has become a structural feature of how insurance companies operate — one that regulators and investors need to understand clearly.

What Insurers Are Actually Buying

Private placements are fixed-income investments (loans, essentially) sold directly to large institutional buyers like insurance companies, rather than through public markets where bonds trade on exchanges daily. They are not priced every day like stocks or public bonds. They have no secondary market where you can easily sell them. Once you own one, you often own it until maturity.

Life insurers accept this illiquidity in exchange for a higher return — what is called an "illiquidity premium." For life insurers, this trade makes sense on paper: they have long-term obligations, like annuity payments to retirees that stretch decades into the future, so they can theoretically hold these assets to maturity.

But private placements are only the beginning. Insurers have also been buying into private equity funds, infrastructure debt, real estate loans, and direct lending — the full menu of private market assets. The Bank for International Settlements noted in September 2024 that insurance companies and private equity firms together had sharply increased their exposure to riskier, less liquid assets. The Federal Insurance Office report now provides detailed U.S. numbers.

The practical constraint is lock-up periods — the years during which your money is locked in and you cannot access it. Analysis by StepStone Group from March 2026 shows that private market assets often have lock-ups exceeding ten years. Here is the problem: while an insurer's liabilities are long-term, they are not fixed. When policyholders panic and withdraw money — particularly during financial stress — the insurer needs cash. That is exactly when these hard-to-sell assets are hardest to turn into cash, and their prices often fall.

The Private Equity Puzzle

The story gets more complicated when you look at who owns whom. Some insurance companies are not just investing in private equity funds; they are themselves owned by private equity firms. The National Association of Insurance Commissioners (NAIC) has documented this dual relationship: insurers both invest in private equity and operate under private equity ownership, driven by the pursuit of higher returns flowing in both directions.

This layering creates competing incentives worth examining. An insurance company owned by a private equity firm, which also invests in other private equity funds, has a different set of priorities than a mutually-owned insurer or a public company with no such ties. The balance sheet alone does not always tell you whether decisions are being made to benefit policyholders, to maximize shareholder profits, or to generate management fees.

On the investment management side, the pattern is similar. Prudential's in-house investment unit, PGIM, manages $1 trillion in assets, according to Reuters, making Prudential both a major insurer and a major private asset manager. Other large carriers are doing the same. The appeal is straightforward: managing outside investors' money alongside your own company's money spreads your fixed costs and generates fee income. But it also creates a question: when two different pools of money are chasing the same deals, whose interests come first?

Why This Happened

The shift into private assets over the past decade has a simple explanation. After the 2008 financial crisis, interest rates stayed very low for years. Public bond yields fell so far that life insurers struggled to earn enough return to match what they owed their policyholders. Private placements and direct loans offered the extra yield that public bonds no longer did. Regulatory rules — specifically the Risk-Based Capital requirements in the U.S. — also favored certain private asset structures over equivalently risky public bonds, which gave investment teams an incentive to buy them.

When interest rates rose sharply after 2022, public bond yields climbed. You might expect insurers to shift back to public bonds. They did not. Instead, the combination of higher base interest rates and continued illiquidity premiums made private credit look attractive on a risk-adjusted basis — at least in theory, before you account for the fact that private assets are valued using internal models rather than daily market prices, which smooths out their reported volatility.

The broader context here is worth noting. Something similar happened in the late 1980s and early 1990s. U.S. life insurers competed aggressively by investing in commercial real estate and junk bonds to boost returns. Several large insurers subsequently failed — Executive Life, Mutual Benefit Life, Confederation Life — partly because they had concentrated too much in illiquid, risky assets. When policyholders withdrew their money faster than expected, these companies could not sell the assets fast enough or at good prices. The assets might have been fine if held to maturity, but maturity was not an option when policyholders had other choices. The structural parallel to today is not exact, but it is worth keeping in mind.

Regulatory Attention Is Building

The Federal Insurance Office included this data in its annual report deliberately. Insurance regulation in the United States is fragmented — each state has its own insurance regulator, creating 50 separate supervisory jurisdictions. The FIO does not directly oversee insurers, but it is tasked with watching for systemic risks across the industry. The concentration of hard-to-sell private assets on life insurer balance sheets is precisely the kind of slow-building risk that state regulators, with limited resources and periodic examination cycles, can easily miss.

The concern is not that private assets are inherently wrong for long-term liability investors — they are not. The concern is about three specific risks: that the valuations are opaque, that deals are often intermediated by managers affiliated with the insurers themselves (creating conflicts of interest), and that stress scenarios can flip a theoretically long-term holding into a forced sale situation quickly. The one-third share of global insurer balance sheets now allocated to private assets is a figure that will attract increasing scrutiny from the Financial Stability Board, the International Association of Insurance Supervisors, and national regulators through 2026 and beyond.

The Indicators to Track

The warning signs most likely to matter over the next 12 to 24 months are visible, even if their timing is hard to predict. If credit conditions deteriorate in private credit markets — through rising default rates or if companies stop paying cash interest and instead add to their debt (called "PIK toggle" behavior) — the losses will show up first in private equity-affiliated insurance carriers' loss ratios and reserve adequacy before they appear in regulatory capital ratios. This lag happens because private assets are valued internally, not marked to market, and these revaluations typically lag the real economic damage.

Regulatory action is also likely. The NAIC's working groups have already flagged concerns about affiliated investment arrangements, so new disclosure rules or stricter capital charges are probable. Finally, any significant uptick in policyholders surrendering policies — triggered by broader economic stress or better returns available elsewhere — will test whether insurers' liquidity management plans actually work when they have this many hard-to-sell assets. These plans have mostly been theoretical so far.

The shift documented in the Federal Insurance Office's 2025 report is real and embedded in the industry. Whether the guardrails built around it are adequate is a question the next credit downturn will answer.