Private credit is as much as a third of US life insurer assets

Private credit accounts for as much as a third of U.S. life insurer assets. European direct lending has reached $400 billion, about a third of the private credit market. Managers now separate investment-grade placements from lower-middle-market loans when they build a private-asset book.

For an allocator deciding between a European direct-lending sleeve and a U.S. corporate book, the comparison that decides the mandate is the dollar-hedged yield after hedging costs. Bill Sacher and James Charalambides said a European loan's spread only counts for a dollar-based book once the currency exposure is neutralised, which puts the hedging line and its cost inside the allocation case rather than in operations.

Geoff Cornell of Insurance AUM Journal said last year's reinsurance transfers, which topped $100 billion, were tied to a wider shift by insurers into private credit and commercial mortgages.

At the investment-grade end, Barings client portfolio manager Bo Trant said in an Oct. 29 article that targeted European and U.S. capital rule changes favor investment-grade CLO tranches for insurers. He cited $60 billion of CLO ETF assets.

In the UK, ten annuity providers have invested £22.8 billion under an ABI pledge. The trade body says the main obstacle is a shortage of ready projects, and standardisation would cut due diligence costs.

The spread left after the currency hedge is priced will decide next year's European allocation. If wider European spreads cover the hedging cost, the dollar-hedged case holds; if not, the trade becomes harder to justify against a U.S. corporate book that needs no hedge.