**Global Insurers Eye Expansion into Private Credit Market Amid Rising Interest Rates**
In a significant shift within the investment landscape, global insurers are increasingly turning their attention towards the burgeoning private credit market, a move underscored by a recent Moody’s Ratings report. This strategic pivot comes as traditional, more transparent public markets present insurers with diminishing returns amidst a volatile economic environment.
According to the report, an overwhelming majority of the world’s largest insurers, nearly 80%, are planning to bolster their investments in at least one class of private credit. This asset class, which involves non-bank lending to middle-market companies, has seen a steady rise in popularity. It’s particularly appealing in the current climate where banks have grown cautious, steering clear of riskier loans to highly leveraged borrowers due to elevated interest rates.
The allure of private credit for insurers lies in its potential for higher returns compared to the fluctuating yields of public credit markets. Moody’s findings reveal that insurers have already increased their private credit holdings in the U.S. to 36% of their total investments in the region. This trend is driven by the search for assets that offer additional compensation for their lower liquidity, without necessarily hiking the credit risk.
Despite the opaque nature of the private credit market, survey participants indicated that a significant portion of their holdings are in investment-grade quality assets. However, there’s a note of caution among some respondents regarding the long-term risks associated with these investments, which could potentially overshadow their short-term benefits.
The report also highlights a growing concern over rising delinquencies and defaults among borrowers, exacerbated by inflation and higher interest rates. This scenario is prompting more borrowers to seek alternatives to default, turning to private credit solutions. Insurers, in response, are expected to quicken their pace in increasing holdings in private placements, asset-based financings, and commercial real estate loans.
Yet, as insurers ramp up their engagement with the private credit market, they face the challenge of balancing their asset and liability management—a misstep in which Moody’s warns could be “highly credit negative.”
This strategic shift among global insurers towards private credit investments marks a pivotal moment in the financial industry, reflecting broader changes in the global economic landscape and the continuous search for yield in a low-interest-rate environment.
(Reporting by Matt Tracy; Editing by David Gregorio)