Moody's Warns US Life Insurers' Private Credit Push Is Creating Liquidity and Concentration Risks

Moody's Ratings has issued a pointed warning about the growing risks embedded in US life insurers' aggressive expansion into private credit — a trend that has transformed the sector's investment portfolios over the past several years and is now drawing intense regulatory and investor scrutiny.

The core of Moody's concern is twofold: liquidity and concentration. Private credit assets are inherently illiquid — they cannot be quickly sold without significant value loss — which creates a potential mismatch for insurers that may need to meet policyholder obligations on demand. And the exposure is distributed very unevenly across the industry. Barclays found that private credit holdings among US life insurers grew by more than 20% in 2025, with exposure exceeding 15% of investments among some private-equity-affiliated insurers, including Apollo-backed Athene and KKR-backed Global Atlantic. This concentration means that stress in private credit markets would not affect all insurers equally, but would hit the most exposed firms hardest.

The warning carries added weight against a backdrop of rising defaults. Proskauer's Private Credit Default Index, which tracks 697 loans totalling $189.2 billion, reported a default rate of 2.73% in the first quarter of 2026 — up notably from 1.84% just two quarters earlier. While still moderate by historical standards, the upward trajectory adds substance to Moody's caution that the credit quality of these portfolios bears close watching as economic growth slows under the weight of the Iran war's supply shock and elevated inflation.

The findings land at a moment of heightened regulatory focus. The US Treasury convened domestic and international insurance regulators earlier in 2026 for talks on risks in the private credit sector, and NAIC president Scott White has flagged transparency in life insurance portfolios as a top regulatory priority for 2026. This regulatory attention complements the NAIC's discretion amendment, effective January 1, which allows regulators to challenge the credit ratings underpinning these private assets. Together, the Moody's warning, rising default data, and intensifying regulatory scrutiny paint a picture of an asset class that delivered attractive yields during the higher-rate era but now faces a genuine stress test — one whose outcome will shape the financial strength of some of the largest US life insurers and annuity providers.