Two Must-Dos To Keep Your Annuities & Insurance Safe: The $849 Billion Private Credit Problem

The $849 billion of private credit in annuities and insurance companies have regulators worried - what about you? And what can you do to protect yourself when you buy an annuity, or any other insurance product for that matter?

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Is your insurance company, your annuities company, investing in private credit? And what can you do to protect yourself when you buy an annuity or any other insurance product for that matter? Hello, Diamond Nestic members, Super Savers and Course fans. I hope you're healthy and well. So we've connected quite a few of our Diamond Nestic regulars with our trusted annuity specialists over the years. And some of the questions that we've gotten recently are around what these insurance companies invest in, and specifically their exposure to private credit, which is understandable given recent headlines about the potential collapse of private credit as redemption requests rise, like this one here from Reuters. Private credit alarm bells echo 2007 subprime. So given that life insurers, the firms that you buy your annuity from, provided$849 billion of private credit to the market in 2024, as a recent working paper by the Chicago Fed found, here are the three topics that we'll be covering today. One, what is private credit and why may insurance regulators get nervous? Two, which insurance companies are investing in private credit to back up annuities? And three, what's our personal perspective on how to keep your annuities and other life insurance products safe? Let's dive in now, folks. What is private credit? And why may insurance regulators get nervous? When the NAIC, the National Association of Insurance Commissioners, publishes a new document, it is usually not breaking news. After all, coordinating policies amongst the chief insurance regulators from the 50 states and additional U.S. territories is an important but not always very sexy task. Now, when the NAIC put out this issue brief about how state insurance regulators are responding to growth in CLOs and private credit recently, just earlier this month, on April 14th, 2026, it was a bit different. Admittedly, we didn't see headlines flashing on the cable news networks, but we got a few comments from some of you who were wondering whether they should be concerned about the safety of their annuities, as I mentioned earlier. The insurance commissioners summarized the problem as follows. Insurers are increasing their exposure to private credit and other complex credit markets in search of yield, raising important questions around liquidity, transparency, valuation, and risk management. So let's take this step by step. Private credit in the widest sense is any loan that is not traded in a public market. For example, if you as a private person lend a family member or an old friend some money. Now, when we speak about private credit in the context of today's video, that is not what we're talking about. What we mean is the professional end of the market, where non-bank actors, including insurance companies, lend some money to a company or other business entity without involving a bank or any public markets. For those of you who want a deeper dive, Marcus did a fantastic miniseries on private credit. Link below. If you want to learn more about what private credit is, what history has taught us about private credit, and how to invest in it, if that's something you may want to try for yourself. And for our VIP Investment Club members, you can find our entire private credit miniseries here in our member zone, including last month's member video on six potential BDC business development company opportunities that were paying 10% plus forward dividend yields as of March 27th, 2026. Marcus and I did pick up some private credit shares for our personal portfolio after posting last month's private credit miniseries. So far it's been going well, but it's only been a few weeks, so let's see. And one of our VIP investment club members recently shared that his own small foray into private credit produced a 7% gain in 13 days. Keep in mind that this may not be representative of everyone's experience with BDCs and private credit, and that past performance is not indicative of future results or outcomes. You should never invest in anything you don't understand, and this is even more true for something as complex as private credit. But back to insurance companies and private credit. It's really not a secret why insurance companies are increasing their exposure to private credit. Private credit may bring higher yields than public credit. For example, the working paper from the Federal Reserve Bank of Chicago that I already mentioned before found evidence that these investments have about 80 basis points higher spreads compared to public bonds, a not insignificant difference in credit land. As our Diamond Nesteg regulars know though, higher returns are always associated with higher risk. It's one of the iron rules of finance. As we've seen before, the NAIC highlights four particular risks about private credit investments. First, liquidity. Investors are stuck until the loan matures and is paid back, but cannot easily get the money back earlier if they need it. Private credit may be very hard to sell. There may be no willing buyer at all, or even if there was one, investors may have to look for a long time and or accept a large discount. So an insurance company, just like any private investor, cannot count on private credit if it needs liquidity, cash, urgently. Second, transparency. Private credit loans are negotiated one-to-one, often to companies that are private themselves and do not publish regular financial reports. Many of these companies have no credit rating from a large agency either, so it may be very hard to see from the outside how robust their financial condition and business model really are. This is true for the insurance companies that hold these loans and even more so for their regulators and customers. Third, valuation. Because private loans are not regularly traded, there may be no clear price signals. In other words, investors can't rely on markets to help them identify potential issues that may be coming along. In addition, the lack of established market prices may make it very hard to know what the assets are currently worth, especially if the investor tried to sell early. 4. Risk management. All of this taken together may make it harder to manage the risk of private credit as effectively as that of public credit and bonds. Investors may not see problems when they arise, may not know what the loan is worth right now, and may not be able to sell early to get out of a potentially troublesome position at a reasonable price. Private credit investors may need to be prepared to be in for the long haul, so to speak. In reaction to these questions and concerns, the NAIC says that state insurance regulators are already updating disclosure, capital portfolio monitoring, reinsurance, and ratings oversight tools to respond to the risks highlighted by private credit and other complex investments. Let's hope that forewarned is forearmed, as the saying goes. However, there may be one more problem. The way the industry is structured, a lot of insurance exposure, including a good part of the assets that ultimately back up the annuities that we purchase as private retail customers in the US, may end up with offshore reinsurance firms that have their own foreign regulators. The NAIC seems to acknowledge as much and says it will not turn a blind eye, but do its best to protect U.S. customers, regardless of where they are reinsured. In their own words, they will use all tools available to them to assess the supervisory regime, collateral standards, and reliability of offshore and cross-border reinsurers, including offshore jurisdictions such as Bermuda and the Cayman Islands, which brings us to the next part of today's video. Which insurance companies are investing in private credit to back up annuities? So the NAIC simply says that private credit exposure is concentrated primarily in the life insurance sector and among the largest insurers. And while we haven't found a comprehensive source about which insurance companies have how much of their assets in private credit, this statement does ring true as far as we can tell. We do expect that all major insurance companies will have a certain degree of exposure to private credit, and for some good reasons, which we'll talk about later. That said, the June 2025 working paper from the Chicago Fed that we already quoted before paints a more nuanced picture and says more specifically that private equity-owned, PE owned life insurers drive these trends. It also finds that the higher yields from their private credit investments have allowed PE backed insurers to offer attractive rates and grow their market share. This chart from the same study shows that the market share of private equity-owned insurance companies has grown from maybe 1% in 2010 to as much as 14% by the end of 2024. So the big question here is if PE controlled insurance firms, or frankly, any other insurance firms that invest in private credit can offer potentially better rates, might that be a sign of increased or even hidden risks in their portfolios? The IMF, the International Monetary Fund, published a global financial stability note about private equity and life insurance in December 2023, followed by updates in April 2024 and October 2025. As we already discussed, a fair share of US insurance exposure ultimately ends up in offshore reinsurance companies. This table here comes from the IMF's 2023 study and shows some of the most important reinsurance companies that are fully or partially owned by PE firms or have at least a partnership with them. As far as we can tell, the table is roughly sorted by size and should still be directionally correct at the time of this taping, in April 2026. At the top of the list is Athene, a fully owned subsidiary of Apollo Global Management that has grown very fast since its founding in 2009 to become the market leader in U.S. individual annuity sales with a market share of more than 7% in 2025. Global Atlantic, owned by KKR, and Brookfield have smaller market shares outside the top 10, but are well-known names in the space as well. So the IMF studies, to summarize it in our own words, identified three potential areas of possibly higher risk with PE controlled insurance firms. One, they have much larger illiquid exposures than the median large insurer globally. Two, their capital adequacy is weaker than the median US insurance company. And three, potential conflicts of interest. For example, if the PE owners would be tempted to push their own products on their insurance and reinsurance subsidiaries. And the IMF report highlights private credit as a particular area of concern there. The lack of transparency in the space doesn't help either. So now that we know what private credit is, why it may make insurance regulators nervous, and which insurance companies are investing in private credit to back up annuities. The question is, where does this leave us as buyers of annuities and other life insurance products? Which leads us to the next part of today's discussion. What's our personal perspective on how to keep your annuities and other life insurance products safe? Fundamentally, we think that private credit can be an attractive asset class for insurance companies to back up annuities and other long-term obligations if properly managed. And in our mind, this is in principle true for both insurance companies that are owned by private equity firms as well as for insurance companies that are not. Here are the three key reasons why. One, maturity match. Both private credit and insurance companies typically have long-term time horizons. Being able to predict with a reasonable degree of certainty when the holders of an annuity will get most of their payouts in the future allows the insurer to lock in the investments for matching time horizons. The flip side of this long-term maturity match, of course, is that there may be some extra costs if an annuity buyer wants an early and or unexpected exit. And this is one of the main reasons for the surrender charges on early withdrawals on some types of annuities, such as multi-year guaranteed annuities, and fixed indexed annuities, FIAs. And also for the irrevocable and irreversible nature after the 30-day free look period of single premium immediate annuities and qualified longevity annuity contracts. Check out these annuity videos here for more details on the different types of annuities. Link below for your convenience. Or as usual, email us at jenniferdiamonestec.com to get connected with our trusted annuity specialist and find the annuity solution that best suits you. Moving on now to reason number two for why private credit can be an attractive asset class for insurance companies. Private credit investments usually offer higher yields, which may allow the insurers to offer higher yields to their customers. As we often say on this channel, the higher yields that you often see on medium to longer term annuities versus treasuries are often a result of this illiquidity, which allows insurers to collect a premium on long-term investments. Reason number three, large insurers should have the necessary risk management expertise to manage and monitor a private credit portfolio. In other words, they should have studied the proposed loans and the profiles of the borrowers, completed all their due diligence rounds, and know what they're buying so that when others may be jumping ship because of some bad headlines, they have the numbers and analysis to quantitatively and qualitatively justify their investment decisions. That being said, there are clearly risks in private credit, as we've explained in our private credit mini-series, again, also linked for you below. And while we haven't seen too many actual losses yet, there's definitely a run on some semi-liquid private credit funds that remind us that private credit is fundamentally illiquid and maybe less transparent, hard to value, and hard to risk manage, as the NAIC said at the beginning. So, what can you do as a private retail investor to keep your annuities and other insurance products safe? It's nearly impossible for most of us to really dive deep and judge from the outside where the hidden risks in a private credit portfolio really may be, or how an insurer works with reinsurance companies to manage its risks and whether there may be any conflicts of interest with a potential private equity owner or stakeholder across this entire chain. Every insurance company and every annuity is different to modify one of our standard sayings. And that's why we personally always recommend two key steps: working with a highly rated insurance company and staying below your State Guarantee Association's coverage limits. You should always check the financial strength of the insurance company that you're buying your annuities and other life insurance products from, meaning what is their credit rating. We generally recommend looking at the ratings from the large established agencies first. For example, AMBES, which specializes in the insurance industry, but also from SP, Moody's, and Fitch, where they're available. Remember that all else being equal, the higher the credit rating, the stronger the company will usually be financially and the safer it is. However, there's always a flip side in finance, meaning that the better the credit rating of the insurance company, the lower your monthly checks from an annuity will most likely be. For a fixed income community, this is basically the same as for bonds, where the higher the credit rating of the bond issuer, the lower the interest rate you will typically get on that company's bonds. Whereas the lower the credit rating, the more the bond issuer, like the insurance company, has to pay a risk premium to entice customers to buy. Lower-rated insurance companies have to basically pay more of a risk premium, just like lower-rated bond issuers. And that's why we normally only work with the most highly rated insurance companies, both personally and professionally. The way we see it, annuities as well as some other types of insurance products provide safety. If we want to take on risk, we'll do that in other parts of our portfolio and get the higher returns there, as I touched upon earlier, and not via a lower-rated insurance company, which may put the safety of our annuities and other insurance products at risk. Of course, and as I mentioned earlier, your state guarantee association will protect you up to certain limits if your insurance company were to ever go bankrupt and not be able to pay you what's due to you. But remember that this is a backstop. In our mind, it is not a perfect substitution for a financially strong, highly rated insurance company. As always, email us at jenniferdiamondestec.com if you're interested in getting connected with our trusted annuity specialist to see what the latest rates and payouts look like. Because there's no one size fits all cookie cutter annuity solution. Any annuity you buy should be customized to your personal situation. Alright, Diamond Aztec members, Super Savers and Course fans, I hope you enjoyed today's video and learned something new. And see you very soon with more brand new, wealth-building content for your financial journey.