Insurers push into private credit to lift yields

Direct origination platforms are being built in-house at some carriers.

Private credit is becoming a larger part of insurers’ investment portfolios as they look to raise yields and improve capital efficiency, according to a report by Conning.

The asset manager said insurers are increasingly turning to direct lending through rated structures and feeder funds to access higher returns whilst adding diversification. 

Some insurers have built their own direct origination platforms or partnered with asset managers to tap deal flow, whilst others are still assessing how private credit should fit within their portfolios.

Conning said corporate direct lending has grown into a core segment of private markets, driven in part by tighter bank capital rules under Basel III and liquidity coverage requirements. 

These regulations have limited banks’ ability to lend, allowing private credit funds and other non-bank lenders to expand. 

Banks have also entered into partnerships with private credit managers, further supporting the market’s growth.

Over the past five years, private debt and direct lending have grown faster than the broader private capital market. 

Conning estimates the direct lending market now exceeds $2t, including business development companies, separately managed accounts and middle-market collateralised loan obligations.

Borrowers are drawn to direct lending because of faster execution, privacy and more flexible deal structures, whilst  investors view it as a steady income source that can offer diversification from public markets. 

For insurers, Conning said private credit can help improve portfolio yields whilst remaining aligned with liability profiles and capital requirements, as asset managers continue to structure products suited to insurance balance sheets.