US life insurers are increasingly allocating to securitised credit assets, according to a recent article from L&G – Asset Management, America. The firm cites regulatory capital rules as a ‘meaningful driver’ because senior tranches of many securitised asset pools benefit from higher designations under the National Association of Insurance Commissioners (NAIC) risk‑based capital framework, which in turn means they carry a relatively lower capital charge.
Despite the NAIC’s rules having been around for a while, this is a recent development: citing J.P. Morgan and S&P data, the article suggests that purchases of securitised bonds increased 63% from year‑end 2023 to year‑end 2025.
According to Dan Dreher, Solutions Strategist at L&G – Asset Management, America, this development has grown from another recent trend in the US life/annuity space, namely, record annuity sales in recent years.
“The main reason [for the trend] is annuity growth leading to insurer’s needs of more yield, diversification and duration. The NAIC rules are not new, but there are incremental regulatory improvements and stronger capital efficiency of securitised. The 2025 reporting and classification framework makes clean, senior, bond-like securitised tranches easier to own, explain and compare, while increasing scrutiny on harder-to-classify or more equity-like structures,” he said.
“That matters because senior CLO, ABS, MBS and CMBS tranches – what insurers are most interested in – can offer more spread per unit of regulatory capital than similarly rated corporates when they have strong subordination, collateral diversification and structural deleveraging features.”
Running concurrently with this trend of life insurers increasingly allocating to securitised credit products, and private credit more generally, is that of concern among some market participants – and regulators – of a perceived greater credit risk level in the life insurance market generally.
This itself has been driven by the convergence of asset management and insurance, but the primary driver of this concern is due to the pension liabilities being taken on by life insurers via the pension risk transfer market.
The bottom line is that the naysayers allege that private ratings understate credit risk, a criticism that Peter Giacone, Senior Managing Director and Head of Insurance Ratings at KBRA, disagrees with.
“In our experience, the level of disclosure in private ratings is no different than public ratings. The only difference is that relevant information is distributed to those who are involved with the transaction rather than publicly available. It is important not to equate limited public dissemination with weaker disclosure,” he said.
“At KBRA, published and unpublished ratings are produced using the same methodologies, rating committees, controls, surveillance processes, disclosures, and rating scales; the primary difference is distribution. In addition, we have seen first-hand through our rated universe the extensive due diligence undertaken by insurance companies who invest in this space and have noted the sophistication of the risk management frameworks generally compensate for the lack of public disclosure.”
Beyond the granularity of individual asset assessments, critics also frequently warn that this systemic shift toward private credit could erode the foundational solvency of the entire life insurance sector. The fear is that a lack of public visibility disguises something of a ticking financial clock, threatening insurers’ ability to back these long-term pension liabilities.
Giacone suggests, however, that macro-level alarmists might be minded to take a deeper look at the data. Rather than a sector on the brink of a downgrade spiral, independent financial assessments of the largest, most active players indicate that risk management frameworks are actively keeping pace with their evolving asset mix.
“We’d also note that published credit ratings by legacy agencies for the larger US life insurers active in private markets have not pointed to a broad deterioration in industry financial strength. Utilizing independent credit analysis informed by extensive detailed review of insurer assets and liabilities, far more than is demonstrated in most news and media reports, these stable and strong ratings generally cite robust capitalization, earnings capacity, investment governance, and enterprise risk management as supportive factors for these companies, even as private asset allocations have increased,” he said.
“This further reinforces our view that the issue should be evaluated through company-specific analysis of asset quality, liquidity, and capital flexibility, instead of through broad a priori assumptions that private asset growth necessarily signals rising systemic weakness.”
Whilst life insurers may be expanding into traditional securitised structures like CLOs, their appetite seems to be far more selective when it comes to niche asset pools. Specifically, manufacturers of securitised credit assets exposed to longevity or mortality risk, such as reverse mortgages or life settlement pools, still face significant frictions when trying to attract insurance capital.
“The expertise required to understand the underlying product [reverse mortgages] is concentrated in a relatively small number of institutions. This is critical in being able to assess value in view of key risk factors such as prepayment behaviour and house price risks,” said Dreher.
“It’s a similar story for life settlement securitisations where structuring is difficult due to the complex nature of the product stemming from uncertainty around mortality and timing of cashflows.”
The complexity factor inherent in longevity or mortality risk-linked assets is made manifest in the ratings arena as well, but for originators or manufacturers of these products, there is a potential benefit beyond risk-adjusted returns for insurers to holding them as part of a diversified portfolio.
“These sectors can be more complex to evaluate than more conventional securitized credit because the analysis may involve insurance-specific parameter assumptions, such as mortality or longevity experience, policyholder behaviour, servicing quality, legal and regulatory considerations, and cash flow and actuarial stress modelling. However, these securities are not necessarily safer or riskier as a category; depending on the composition of the balance of the investment portfolio, these securities can provide a risk/return profile which is largely uncorrelated with other assets held by the insurer,” said Giacone.
This suggests that the longevity and mortality asset industry, should it seek to raise money from the US insurance cohort, must intensify its investor education and messaging efforts. While the life settlement market has made noticeable strides in transparency and standardization in recent years, overcoming deep-seated concerns around headline risk and underlying complexity requires a sustained, industry-wide ‘charm offensive’.
But ultimately, there is a good argument to suggest that the prize is worth the effort. Dreher suggests that this increase in demand from life insurers for securitised credit pools represents a structural change, rather than a short-term, tactical re-balancing, so while competing against the massive, highly liquid markets of traditional ABS and MBS will remain difficult for niche asset managers, the amount of insurance capital is undeniably there for those who can successfully demystify their products and provide an acceptable return.
“The increase in allocations appears to be driven by long-term factors such as liability matching needs, desired diversification, more favourable regulations and continued annuity growth. However, there are still near-term risks related to historically tight spreads that requires robust fundamental underwriting,” said Dreher.
“In other words, the durable trend is more securitised use; the actual allocation should still depend on tranche protection, collateral quality, liquidity, statutory treatment and whether spread adequately compensates for complexity.”
