US life insurers are steadily expanding their holdings in private credit and other illiquid fixed-income assets, a shift that Moody’s Ratings describes as increasingly structural rather than temporary. The agency said this migration is enlarging insurers’ exposure to assets that can offer stronger yields and better liability matching, but also bring added challenges tied to liquidity, valuation and portfolio concentration.
By the end of 2025, these private and illiquid fixed-income positions had climbed to $807 billion, equal to 20% of the sector’s $4 trillion fixed-income portfolio. A year earlier, the total stood at $685 billion, or 18%. Moody’s said the continuing rise reflects both elevated demand for higher risk-adjusted returns and a broader supply of privately originated credit opportunities across the market.
Where Moody’s Sees the Pressure Building
Moody’s identified several areas that deserve close attention as insurers increase their allocations. Concentration risk is becoming more pronounced, with the 10 largest US life insurers holding $352 billion, or 44%, of the industry’s private illiquid bond exposure. That level of concentration leaves a large share of the market more vulnerable to pricing uncertainty and potential liquidity strain during periods of stress.
The agency also said that credit quality within these portfolios is weaker than in the broader fixed-income universe. At year-end 2025, 91% of the $807 billion portfolio carried an investment-grade equivalent designation, yet only 49% was classified as NAIC 1, while 43% fell into NAIC 2 and 9% was below investment grade. In contrast, the wider industry bond portfolio was 95% investment grade, with a larger share in the strongest rating category and a smaller speculative-grade component.
Another area of concern is the market’s growing tilt toward asset-based lending and structured credit, which can increase complexity even when risk appears well secured. Moody’s said payment-in-kind exposure remains relatively limited, but its gradual rise may still serve as a late-cycle signal worth monitoring.
How Private Credit Is Evolving in Insurer Portfolios
Moody’s uses a broad definition of private credit that includes non-bank lending activities such as commercial real estate loans, mortgage lending and traditional private placements. While the market was once dominated by loans to private-equity-backed middle-market companies, it now extends into real estate debt, infrastructure lending and asset-based finance. Newer growth pockets include private asset-backed securities, fund finance and securitisations linked to data centres and similar long-duration assets.
North American life insurers already have significant exposure to this universe, with private credit accounting for 36.8% of total investments. Moody’s noted that recent growth is no longer confined to direct lending; instead, capital is increasingly moving into specialist and more opportunistic segments that may offer attractive returns but often carry greater structural intricacy.
Insurers are also changing how they access these markets. Rather than relying solely on syndicated channels, many are investing through direct origination platforms, strategic partnerships with asset managers and affiliated asset-management structures. Moody’s said these approaches can help insurers tailor duration, collateral and risk exposure more precisely.
What the Numbers Show
To measure the industry’s exposure, Moody’s reviewed Schedule D fixed-income holdings classified as Level 3 and those with NAIC designations of PL or Z. At the end of 2025, PL-rated investments totalled $483 billion, representing 12% of bond holdings. Z-rated assets reached $81 billion, or about 2%, while remaining Level 3 holdings without PL or Z labels added another $242 billion, or 6% of bonds.
Together, those categories accounted for the full $807 billion in private and illiquid fixed-income exposure. Moody’s expects allocations to keep rising as more long-dated financing opportunities emerge in areas such as energy transition projects, transport assets and digital infrastructure.
These investments may improve yield and diversification, but the agency warned that continued growth will also raise the importance of governance, stress testing and capital planning. The valuation of such assets often depends on internal models and assumptions, which can become harder to defend when markets are volatile.
Shift Toward Structured and Asset-Backed Credit
Moody’s found that 64% of the $807 billion private and illiquid portfolio is tied to issuer-level credit risk, including corporate debt, loans, project finance and obligations issued by real estate investment trusts and business development companies. The remaining 36% is allocated to asset-backed securities.
The agency emphasized that asset-backed securities are not automatically riskier than corporate bonds, but they usually involve lower transparency and more structural complexity. That can make valuation more dependent on modelling assumptions and oversight quality.
New investment activity shows the direction of travel. During 2025, insurers bought roughly $2 trillion of bonds, with about 62% allocated to issuer credit and 38% to asset-backed securities. That compares with the existing bond portfolio, where issuer credit accounts for 73% and ABS for 27%. Moody’s said this indicates a continuing move toward structured and collateralised credit exposures.
The agency added that ABS holdings are generally concentrated in senior secured positions, which can provide stronger structural protection. By contrast, issuer credit exposures are mostly senior unsecured, making them more sensitive to leverage, covenant quality and recovery outcomes during downturns.
PIK Exposure and Late-Cycle Monitoring
Payment-in-kind exposure remains modest at 1.1% of statutory surplus, according to Moody’s. Even so, the agency cautioned that reported figures may not fully capture embedded risk, since some investment vehicles can hold PIK-generating assets without showing that feature directly in the security owned by the insurer.
Moody’s said current PIK levels do not appear large enough to materially alter sector balance sheets, but they still warrant monitoring if market conditions deteriorate. Among the insurers with the highest PIK balances relative to statutory surplus at the end of 2025 were Resolution Life US, Genworth, Security Benefit, Wilton Re and Sammons.
Overall, Moody’s conclusion is clear: US life insurers are becoming more exposed to concentration, liquidity and valuation pressures as private credit and other illiquid assets take up a larger share of their portfolios. While these investments may support returns and long-term liability matching, their increasing size and sophistication make robust governance, disciplined stress testing and strong capital management more important across the sector.
