December 11, 2025

By Matt Reilly, CFA, Managing Director - Insurance Solutions; John Rup, Director - Insurance Solutions

 

Private credit is reshaping insurer portfolios as rated structures and feeder funds unlock new sources of capital-efficient yield. Insurers have been accessing the market to enhance portfolio yields while adding diversification to their portfolio.

Early moving insurers have invested in direct origination capabilities or developed partnerships with asset managers to access direct lending deal flow. Yet, many are still figuring out the role private credit will play in their portfolio and the most effective way to invest. As the market continues to expand, it prompts a critical question for every insurer: How might private credit fit into my portfolio?

A Growing Market

Corporate direct lending has evolved into a core segment of private markets, with investors providing loans directly to borrowers while bypassing traditional bank intermediaries. While banks remain active in commercial and industrial lending, post-crisis regulations like Basel III and liquidity coverage ratios have tightened capital requirements. These constraints opened the door for private credit funds and other nonbank lenders to expand aggressively, transforming the competitive landscape. Further supporting this growth has been from banks themselves, who have found partnership opportunities in lending to private credit funds¹. 

During the last five years, private debt and direct lending strategies have outpaced the broader private capital universe. Figure 1 illustrates the growth of private capital overall, with a particular focus on private debt and direct lending strategies. The direct lending market is estimated to be in excess of $2 trillion when factoring in Business Development Companies (BDCs), Separately Managed Accounts (SMAs), and middle market Collateralized Loan Obligations (CLOs)². 

The market has continued to grow as borrowers and investors alike seek flexibility and yield. Borrowers are drawn to direct lending for its speed, privacy, and customizable structures and terms. Investors view it as a reliable income source with the ability to customize terms, and deliver diversification to public markets and access to a range of borrowers not accessible in other markets. 

The growing private credit market provides insurers with new opportunities to enhance portfolio yields and diversification. For many types of insurers, private credit can be an attractive area to invest while maintaining alignment with liability and capital requirements. As the direct lending market has evolved to bring together capital and borrowers, asset managers have worked to make direct lending a strong match for insurers’ balance sheets. 

Click below to continue reading Conning’s Viewpoint, “Direct Lending for Insurers: Enhancing Yields and Optimizing Capital Efficiency."

 

Footnotes
1. Source: Federal Reserve Bank of Kansas City (2025). https://www.kansascityfed.org/research/economic-bulletin/banks-and-private-credit-competitors-or-partners/
2. In addition to the funds reports in Figure 1, these investment vehicles provide other ways for investors to participate in the direct lending market.

Additional Source Information
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Risks of Investing in Direct/Private Credit
Private Debt
• Market Risk - Market, or systematic, risk is the risk that private debt may be correlated with general market downturns regardless of the particular business conditions and outlook for the individual companies
• Credit Risk – eroding fiscal health in issuing companies resulting in inability to meet debt obligations
• Inflation Risk - Inflation erodes the purchasing power of future cash flows from investments. In times of high inflation the value of securities may be reduced
• Liquidity Risk - may be less liquid than other fixed-income securities or illiquid, especially in times of market stress, potentially resulting in unfavorable pricing or difficulty in exiting positions.

About Conning
Conning (www.conning.com) is a leading investment management firm with a long history of serving insurance companies and other institutional investors. Conning supports clients with investment solutions, risk modeling software, and industry research. Founded in 1912, Conning has investment centers in Asia, Europe and North America. Conning is part of the Generali Group.

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