Moody's: US Life Insurers' Private and Illiquid Bonds Reach $807 Billion, 20% of Fixed Income, With Concentration and PIK Risks to Watch

Private credit has become a core part of how US life insurers invest, and Moody's Ratings says that the shift carries risks that deserve close attention. In a report published on June 8, 2026, and covered by Insurance Business and Reinsurance News, Moody's said the industry's private and illiquid bonds reached $807 billion at year-end 2025. That is about 20% of the industry's $4 trillion fixed income portfolio, up from $685 billion, or 18%, a year earlier, an increase of $122 billion in one year. Moody's called the shift structural rather than cyclical. This article summarises the report as covered by those outlets. An earlier version relied mainly on the Barclays growth figure and the Proskauer default index; the Moody's figures themselves are now set out first.

How does Moody's define the assets? According to Reinsurance News, Moody's defines private credit as non-bank lending. For insurers this includes commercial real estate and mortgage loans and traditional private placements. Of the $807 billion, bonds carrying a private-letter rating (PL) account for $483 billion, or 12% of bonds, Z-rated bonds for $81 billion, or about 2%, and other Level 3 holdings for $242 billion, or 6%. By composition, 64% is issuer credit obligations such as corporate debt, loans, project finance and REIT and BDC obligations, while 36% is asset-backed securities. Moody's says growth is spreading into real estate debt, infrastructure debt and asset-based finance, including private ABS, fund finance and data centre securitisations. Demand is driven by higher risk-adjusted yields and by more privately originated credit opportunities. Insurers get access through direct origination platforms, partnerships with asset managers and affiliated asset management structures.

What are the four areas Moody's is watching? First, concentration. The ten largest insurers hold $352 billion, or 44%, of the private illiquid bonds, while holding only 24% of total industry fixed income. Second, a widening credit-quality gap. Reinsurance News reports that 91% of the $807 billion carries an investment-grade-equivalent designation from the NAIC's Securities Valuation Office. By NAIC category, 49% is NAIC 1, 43% is NAIC 2 and 9% is below investment grade. The wider $4 trillion portfolio is 95% investment grade, with 59% in NAIC 1, 36% in NAIC 2 and 5% below investment grade. Moody's said that impairment rates in private credit could exceed those of liquid holdings in a downside scenario. Third, structural complexity. Asset-backed securities made up 38% of 2025 purchases, against 27% of existing holdings, which Moody's described as a deliberate strategic shift rather than passive drift. Fourth, payment-in-kind (PIK) instruments, where a borrower pays interest by adding to the debt instead of paying cash. PIK exposure equals 1.1% of statutory surplus, which Moody's views as moderate and not currently a material threat to balance sheets, but a possible late-cycle warning indicator. Insurers with the highest PIK balances relative to surplus include Resolution Life US, Genworth, Security Benefit, Wilton Re and Sammons, according to Reinsurance News. Moody's also cautions that headline PIK numbers may understate exposure, because bonds issued by business development companies may not show PIK even when their underlying borrowers use it.

Where is the stress emerging? Moody's says risks are emerging mainly in middle-market direct lending, where credit quality is weakening and borrower stress is rising. It also notes that, under narrower definitions of private credit, exposure is more limited, and that most reported exposure is investment grade. Moody's expects private credit corporate lending assets to exceed $2 trillion in 2026 and approach $4 trillion by 2030.

What other data points are cited? Insurance Business cites Barclays as finding that US life insurers' private credit holdings grew by more than 20% in 2025, with exposure above 15% of investments at some private-equity-affiliated insurers, including Apollo-backed Athene and KKR-backed Global Atlantic. It also cites the Proskauer Private Credit Default Index, which tracks 697 loans totalling $189.2 billion and reported a default rate of 2.73% in the first quarter of 2026, up from 1.84% two quarters earlier. Those figures come from different sources and use different definitions, so they should not be added together or compared directly with Moody's numbers.

What are regulators doing? The article says the National Association of Insurance Commissioners' 2025 Principles-Based Bond Definition lets it challenge the classification of complex assets, and that higher defaults could lead to capital charges. NAIC president Scott White has named transparency in life insurance portfolios as a top 2026 regulatory priority. The US Treasury convened domestic and international insurance regulators earlier in 2026 to discuss private credit risks. From year-end 2025 statutory filings, insurers must give more detailed bond disclosures, separating issuer credit obligations from structured ABS. In its commentary, Moody's stressed governance, stress testing and capital planning.

What does this mean for policyholders? Life insurers and annuity providers use long-term assets to match long-term promises, and illiquid assets can be a natural fit for that. The risk Moody's points to is not that policies are about to fail, but that concentration, weaker credit quality in some segments and complexity could make the system more vulnerable in a downturn. Those with annuities or life policies can look at their insurer's financial strength rating and ask how much of its portfolio is in private and structured assets.

The wider message is that private credit is no longer a niche for insurers. It is a material part of the industry's balance sheet, and its performance in a slowdown will be watched by ratings agencies, regulators and investors. This article summarises published reporting and is not investment advice.