Insurers held about $110 billion of the U.S. private credit assets in 2024, and they had legal commitments to provide $90 billion in additional capital, or "dry powder," to U.S. private credit funds.
Ted Berg and Jung Hoon Lee, analysts at the Office of Financial Research, have published those figures in a new report on counterparty exposure to private credit arrangements.
Insurers accounted for 11% of the $997 billion in private credit assets that the analysts could find and about 29% of the $312 billion in "uncalled capital," or commitments to provide dry capital.
The analysts suggested that any problems that insurers or other counterparties had with living up to commitments to supply dry powder could cause problems for the private credit funds.
"While capital calls present minimal challenges during normal market conditions, they could become significant liquidity stressors during protracted market downturns," the analysts wrote in the report.
If the insurer investors and other investors have trouble finding the cash to meet the commitments, that could force the investors to "sell more liquid assets, such as publicly traded stocks and bonds, to fulfill their contractual obligation," the analysts said.
Forced sales of stocks and bonds could, in turn, hurt the prices of those assets.
Office of Financial Research: The Office of Financial Research is an arm of the U.S. Treasury Department that helps the federal government understand the U.S. and world financial systems and identify events and trends that could affect financial stability.
Private credit: The analysts defined the term "private capital" to include "nonbank lending to small and midsize businesses that are rated below investment grade."
The analysts also included "lending to real estate development projects, infrastructure projects, and structured credit products."
The analysts excluded bank loans, corporate bonds that are registered as securities, and broadly syndicated loans.
The analysts did not distinguish between the investments of life and annuity issuers and other types of insurers in their report, but, because of life and annuity issuers' heavy need for investment arrangements that stay in place for many years, a high percentage of the insurance-related private credit assets and uncalled capital amounts included in the totals likely came from life and annuity issuers.
Some retail investors who had a chance to invest in private funds have become nervous about the funds in recent months and caused headaches for the fund managers by asking to pull cash out early.
The analysts emphasized that many of private credit fund managers use conservative strategies that minimize risk and help protect flexibility when investment prices are changing rapidly.
"Loans to private credit funds are often significantly overcollateralized to account for the riskiness in the underlying portfolio loans which serve as collateral," the analysts wrote.
But one concern is that policymakers may know less about the health of the loans in private credit portfolios than about the health of other types of loans, the analysts said.
Insurers' assets: The private credit asset holdings and dry-powder commitments described in the report are small relative to the size of life, health and annuity issuers' total assets.
The issuers held $9.3 trillion in assets in 2024, with $3.4 trillion of the total in corporate bonds, according to the American Council of Life Insurers.
Private credit assets amounted to only 1.2% of the issuers' total assets. The dry-powder commitments amounted to less than 1% of the total.
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