Insurers commit to private markets as non-bank lending continues to grow

_{Mark Erickson, Global Insurance Strategist, BlackRock}

Mark Erickson is Global Insurance Strategist for BlackRock’s Financial Institutions Group. Before joining BlackRock in 2022, he was the COO of the Investment Office at Global Atlantic Financial Group, an insurance and reinsurance provider. He previously worked at Eton Park, a global multi-strategy hedge fund, and Goldman Sachs.

Grant Murgatroyd, Head of News at Preqin, and Shaun Beaney, Editor of Preqin First Close, asked Mark about the insurance industry’s shift into private markets, investment opportunities, the regulatory context, and why better technology infrastructure is essential to unlock potential across insurers’ whole portfolios.

Grant Murgatroyd: In BlackRock’s 2025 Global Insurance Report, you note continued appetite for private markets is secular rather than cyclical. Why do you think that?

Our clients have been moving into private markets more aggressively in the post-financial crisis period. In the life business in the US, 40 to 50% of the largest insurers’ assets are now private markets.

There was a reset of the entire investment model post-financial crisis for two reasons. First, we went into a global era of ultra-low interest rates, so insurance companies who have historically been able to get enough yield from public fixed income to meet policyholder obligations no longer had that pleasure. Second, there were significant regulatory changes, and a divergence between regions. The National Association of Insurance Commissioners’ risk-based capital (RBC) framework provided US insurers with more flexibility to seek investment alternatives through the private markets, compared with capital regimes in Europe and Asia.

These two factors pushed US clients to be relatively more assertive in their allocations to private markets. US life insurers have long been allocated to investment-grade private placements and commercial mortgage loans. However, there was a significant expansion in their allocations to private markets following the financial crisis. Insurers moved into high-grade private debt, residential mortgages, direct lending in all its forms, and the newly created category that people call asset-based finance (ABF).

It’s a secular shift. Some prognosticators said that when interest rates normalized, the shift to private markets would reverse, but that’s not what happened at all. We survey insurers every year for our Global Insurance Report and the proportion wanting to increase allocations to private markets has been quite steady at around 30% for the past seven or eight years. This indicates to me that this is a secular shift – not a cyclical, rate-driven shift.

BlackRock has identified the shift from bank to non-bank lending as a mega force. And the two biggest categories of non-bank lenders have been asset managers and insurance companies, as well as the combination of those two.

GM: How are these changes affecting private markets?

Insurance companies are governed by RBC frameworks. They need to think very, very carefully about the capital charges on the different investments they make. Most regulators around the world have an undifferentiated view of LP investments in commingled funds and require very high capital charges, no matter the strategy — private equity, private credit, infrastructure, or hedge fund.

As a result of that, when insurance companies invest in private markets where the underlying assets have lower capital charges than LP investments – namely high-grade private debt – they’re typically not investing via LP stakes. For these asset classes, they’re more commonly investing through separately managed accounts and co-investments, as well as insurance-specific structured notes. Fund managers have responded to that, and we expect to see continued evolution and innovation of products tailored to insurers’ needs.

Shaun Beaney: What opportunities do you think there are for insurers in private credit – particularly in real estate lending, direct lending, infrastructure, and asset-based finance?

Those are the major private credit food groups for insurers, so let’s do a double click on each of them. Within real estate lending you have two flavors: commercial and residential. Insurance companies have historically been very significant lenders to the commercial mortgage market, and that continues to be the case.

Appetite in the post-pandemic period on the commercial lending side has gone down because of the unfavourable dynamics within the office sector. However, this impact is limited, and for most insurance companies, commercial real estate lending continues to be a meaningful allocation. We’re seeing an increase in appetite for residential mortgages, which is a relatively new allocation for a lot of insurance companies.

On corporate risk, most life companies have a meaningful allocation to the investment-grade, private placement space. Given the favorable RBC charges for anything with an investment-grade rating, that continues to be an area of focus. For direct lending, which includes a lot of below-investment-grade companies, insurance companies are typically getting their exposure through a separately managed account or a structured product. For example, with a public or private CLO (collateralized loan obligation) fund, insurance companies can invest either in just the investment-grade tranches or the whole stack, depending upon their strategy.

Then there’s infrastructure debt, which includes both investment-grade and below-investment-grade debt. We have seen an increase in appetite here, particularly from life insurers who have a need for longer duration private debt. Like direct lending, there are structures that can pool loans into structures, which can then be rated to provide more capital efficiency.

ABF is a relatively new asset class for a lot of insurance companies, but it’s the tip of the spear in the next shift from bank to non-bank lending. There’s a group of insurance companies who haven’t invested yet and are still doing the work to see if they want to make allocations and, if they do, what kind of allocations they want to make. And then there’s a group of companies who’ve done that work and decided they like the asset class. For that group, the constraint is supply of ABF.

SB: Do you think we're going to see more insurers invest in unlisted infrastructure?

Some insurers are long term, multi-decade investors in infrastructure equity and debt, and are very familiar with the asset class. Some have their own origination teams. But that’s a minority. The bulk of insurance companies either have no exposure to infrastructure or are just beginning their journey and making their initial investments. They’re still on their own learning curve. Where do they see the risk-reward? Is it on the equity side? Is on the debt side? If it’s on the debt side, do they want to stay in investment grade? Or do they want to move into below-investment grade, where the extra pickup in yield might be worth the higher capital charge?

The additional factor here is that insurance companies globally have made some of the most explicit commitments to sustainable and transition investing, with many making net-zero commitments. It can often be challenging to find the right public and private investments to put money to work against those commitments. Many of these companies have been evaluating the different investment opportunities that align with their sustainability commitments, and that leads them to the infrastructure space, particularly projects supporting energy transition.

GM: Are insurers moving towards a ‘total portfolio’ approach?

That’s a 100% ‘yes’. It is the direction of travel and the desire of the CEOs, CFOs, and CIOs that I speak to. The challenge is that it’s very, very hard to get from where they are today to where they want to be.

When they only had public assets in their portfolio, it was a simpler task. But now they’ve made much more substantial allocations to private markets, where the information is heterogeneous and not always available from the point of view of position management, portfolio management, and risk management. Standardizing all the data so that you can compare across asset classes, across public and private markets, and across geographies, is extremely challenging. Our clients are spending a lot of time trying to figure out how to improve their technology infrastructure to manage what has become a much more complex asset portfolio.

GM: Given the complexity, where should insurers start that journey?

It starts with asset liability matching (ALM). What are the underlying liabilities that they, as an insurance company, are backing with their assets? And then, within that asset portfolio, there’s a lot of complexity, because most insurance companies don't just sell one product. They sell a whole portfolio of different products that have different investment needs, with different liquidity and risk characteristics.

For a global insurance company with lots of different products and jurisdictions, different capital frameworks in every one of those jurisdictions, different flavours across public and private, and even within public, it is critically important they make that all work from an ALM point of view.

Grant Murgatroyd is Head of News at Preqin, and Shaun Beaney is the Editor of Preqin First Close. It’s quick, easy, and free to subscribe to our daily newsletter here.

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_{The opinions and facts included within this report do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin accepts no liability for any decisions taken in relation to this report.}