Where Do Private Assets Fit in an Insurer’s Liability Profile?

04 April 2025

3 min read

Bob Sharma| MD, Head of Insurance EMEA & APAC, Client Group

Gerry Anderson| Insurance Solutions Specialist

Private Assets Offer Opportunities Across the Liability Profile

Private Assets Investable Universe Spreads and Years to Maturity

Private asset strategies have varying numbers of years to maturity and diverse expected returns (spreads over treasuries).

For illustrative purposes only
Size of bubble denotes approximate size of addressable market.
NAV loans: net asset value loans
ECRED and US CRED: European and US commercial real estate debt
UK/EU Resi/BTL: UK/EU residential housing and buy-to-let mortgages
Senior CLO notes: senior collateralized loan obligation notes
As of December 31, 2024
Source: AllianceBernstein (AB)

In an investment regime that could see lower risk-adjusted returns on public credit, private credit’s potential is becoming increasingly attractive to insurers—and was a major talking point at AB’s recent European Insurance Forum. Insurers are warming to the attractions of private assets. But how can they use them to best effect?

The wide variety of private alternative strategies can be deployed across the whole of an insurer’s liability profile, providing attractive risk-adjusted return potential and diversification from public market exposures. In the Display above, we estimate the size of the market for just the leading private asset strategies, which total over £65 trillion in assets alone.

The complete range of private asset strategies offers wide-ranging exposures to both fixed-rate and floating-rate bonds, as well as exposure to inflation-linked securities (although these can be in short supply). This diverse opportunity set allows insurers to match different types of liabilities across their liability profile. For instance, the loans market is predominantly shorter-term and floating-rate, while infrastructure bonds are naturally suited to longer maturities and may offer index-linked coupons. US structured and corporate private placements also feature longer maturities than equivalent corporate bond or bank finance, while senior CLO (collateralized loan obligation) notes offer high-yielding, floating rate alternatives to corporate bonds. NAV loans (typically secured against the assets of private equity portfolios) provide a shorter-term floating-rate alternative.

Each private asset strategy has the potential to offer improved returns on regulatory capital and may offer capital diversification benefits for internal model firms. Many of these strategies can also be structured to be matching adjustment eligible and can help UK bulk purchase annuity writers optimize their back books and support pricing in an increasingly competitive market.

Our recent strategic asset allocation exercises, based on current market conditions and trends, have shown that a “private assets barbell” approach may be advantageous for insurers. In this barbell, government debt is supplemented by private asset strategies and there is a reduction in the usual allocation to public credit.

For insurers yet to invest in private assets, the amount of choice can be daunting. In these cases, a gradual approach to the asset class can help build familiarity, supporting the case for additional investments in private credit strategies and the expert in-house staff and systems necessary to oversee them and ensure compliance with internal risk limits and the Prudent Person Principle.

In terms of strategies, one possible first step would be an allocation to a shorter-duration approach like commercial real estate debt, where investors may benefit from some timely opportunities, in our view.

For each strategy, there’s a variety of competing managers. We think insurers should look for four characteristics:

a proven record of downside mitigation
high ratios for distributions to paid-in capital (DPI—a measure of return on capital)
a clear competitive edge and
insurance pedigree—the experience and knowledge to understand insurers’ needs and to offer the products that best match their liabilities

Private assets have a lot to offer insurance investors, in our view. But getting the best out of this asset class depends on both the investment manager’s expertise and informed oversight by an insurer’s own supervisory staff. This is a complex area of investing and insurers need to be sure they create the right partnerships to succeed.

The views expressed herein do not constitute research, investment advice or trade recommendations, and do not necessarily represent the views of all AB portfolio-management teams and are subject to change over time.

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