European insurers to increase private credit allocations, according to Moody’s
Moody’s Ratings, a provider of credit ratings, research, and risk analysis, expects European insurers to significantly increase their exposure to private credit investments in the coming years.
As of 2024, these assets accounted for approximately 13% of total insurer investment portfolios, based on Moody’s broad definition of private credit, which includes private placements, mortgage loans, and similar instruments.
While this is still below the levels seen in the United States, Moody’s believes the growth trend will accelerate across Europe as insurers continue to seek higher yields, improved asset-liability matching, and portfolio diversification.
Moody’s analysis points to differing liability profiles as a key driver of how insurers allocate to private credit. UK life insurers, which typically provide non-surrenderable annuity products, have larger allocations to private credit—averaging around 18%, and in some cases exceeding 40%.
Continental European life insurers, on the other hand, tend to allocate less—generally under 10%—due to their focus on savings products that are more liquid and often include profit-sharing mechanisms.
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Moody’s highlights the Netherlands as an exception, where some life insurers back long-duration liabilities with residential mortgages, leading to private credit allocations of 35%–40%.
Regulatory frameworks also shape investment decisions. Under Solvency II, private credit assets held directly or through funds are treated on par with public assets of similar credit quality.
Moody’s notes that this encourages investment in private credit, particularly among larger insurers with internal capital models.
However, the higher capital charges applied to securitised private credit instruments—commonly used in the US—restrict their use in Europe to more sophisticated insurers.
Moody’s observes that the UK’s recent Solvency II reforms, which expand matching adjustment eligibility to certain sub-investment grade and “highly predictable” cash flow assets, could spur additional investment in areas such as infrastructure, real estate in development, and private credit securitizations, albeit within defined limits.
According to Moody’s, insurers’ approaches to managing private credit vary by size and specialisation. Large UK and European insurers, especially annuity writers, often source and manage private credit in-house through asset management subsidiaries.
Where needed, external asset managers are used, either via separately managed accounts or pooled funds. Smaller insurers generally rely more heavily on external managers. In certain regions such as the Nordics, some insurers use affiliated banking entities to source mortgage assets.
In its 2025 survey of insurance company CFOs, Moody’s found that the majority intend to maintain or expand their current allocations to private credit. Those with relatively low exposure are expected to increase it the most, while insurers with already high allocations will likely focus on portfolio diversification.
Moody’s expects ongoing growth in private credit assets even among insurers maintaining a market-neutral allocation, as private markets continue to expand more rapidly than public ones. They also report that the composition of private credit portfolios has been relatively stable in recent years, with the main asset classes including residential mortgages, infrastructure loans, private placements, commercial real estate lending, and direct lending.
While origination slowed in 2022 due to rising interest rates, activity is now picking up again as monetary policy eases. According to Moody’s, infrastructure and direct lending remain among the fastest-growing categories, reflecting insurers’ search for yield and long-term investment opportunities.
In the UK, annuity writers are expected to continue expanding their overall exposure to private credit, supported by growth in the bulk annuity market.
Moody’s notes that while some insurers have recently favoured government bonds due to attractive risk-adjusted returns, falling interest rates and increased origination of assets such as equity release mortgages may lead to renewed private credit investments.
UK regulatory reforms allowing a limited inclusion of non-traditional assets in matching adjustment portfolios are also expected to support this trend, though Moody’s points out that these assets will remain a small part of the total due to strict eligibility caps.
On the continent, Moody’s expects large insurers with currently low allocations to private credit to increase their exposure, particularly through direct lending and private placements. While some insurers have started investing in emerging areas such as fund finance and private credit securitizations, capital constraints and asset-liability management considerations are likely to limit broad adoption.
According to Moody’s, only insurers with internal models to manage capital charges will be in a position to meaningfully invest in these asset classes.
Moody’s also anticipates that property and casualty insurers—many of which currently have minimal exposure to private credit—will begin making initial investments. Given their higher liquidity needs, Moody’s expects these insurers to focus on short-dated assets like floating-rate direct loans and securitizations, which can also offer inflation protection. These investments are likely to support surplus assets rather than core insurance liabilities.
Despite the benefits, Moody’s cautions that private credit is not without its challenges. Illiquidity is a primary concern, particularly for life insurers offering policies with surrender features. Since private credit assets are generally not easily tradable, liquidity shocks could result in forced asset sales at unfavourable prices. Moody’s underscores the importance of maintaining strong liquidity buffers and disciplined asset-liability matching practices to mitigate these risks.
Nonetheless, Moody’s maintains a broadly positive credit view of the trend, noting that most insurers reallocating to private credit are doing so from public assets of comparable credit quality.
The agency also highlights that many insurers investing in private credit already have the necessary risk management, credit analysis, and valuation expertise in place. For smaller insurers or those entering specialised asset classes, reliance on external managers is more common, but Moody’s emphasises that growing complexity in private credit will require ongoing investment in internal capabilities.
Valuation practices remain a point of concern. According to Moody’s, the absence of active secondary markets and limited public disclosure mean that insurers often depend on internal models or asset managers for valuations. This can lead to inconsistencies across the industry and complicate pricing in secondary transactions.
Despite these issues, Moody’s believes that the advantages—higher yields, more resilient portfolios, and improved liability matching—will outweigh the drawbacks for most insurers, provided they have the right investment infrastructure.
These benefits could also help insurers enhance their offerings, such as improving the competitiveness of life guarantees and bonus policies, thereby supporting profitability and market position.
Moody’s concludes that the upward trajectory of private credit allocations is likely to continue, underpinned by strategic demand, supportive regulation, and strong institutional capabilities across the sector.
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Moody’s Ratings, a provider of credit ratings, research, and risk analysis, expects European insurers to significantly increase their exposure to private credit investments in the coming years. As of 2024, these assets accounted for approximately 13% of total insurer investment portfolios, based on Moody’s broad definition of private credit, which includes private placements, mortgage loans,…