Key Takeaways:
Fifty-seven percent of insurers plan to increase private credit allocations over the next 12 to 24 months, Mercer's 2026 Global Insurance Investment Survey shows, as state regulators struggle to contain risk-taking in structured debt markets.
"Capitalizing on the benefits of private credit will require insurers to have a rigorous process for manager selection," Amit Popat, Mercer's Global Head of Financial Institutions, said. "It will be important for them to choose managers who demonstrate sourcing, underwriting, portfolio construction and workout capability to navigate the next phase of the credit cycle."
The survey of 123 insurers across 24 countries managing more than $4 trillion in assets found that 66% of respondents identified a shrinking illiquidity premium and tightening spreads as their top concern, while 51% cited rising defaults and deteriorating underwriting standards. The shift marks a reversal from two years ago, when 37% of insurers favored core fixed income over the 32% who wanted more private debt. Now, 57% prioritize private credit, ahead of the 48% planning to add to public investment-grade bonds.
The regulatory dynamic is intensifying. State insurance commissioners took four years to close a loophole on one type of structured debt, only to find insurers had already shifted into equally risky alternatives, according to the Wall Street Journal. The cat-and-mouse pattern reflects a broader trend: private credit loans to US nonfinancial corporations have nearly doubled since 2021, reaching $1.4 trillion by late 2025, per Federal Reserve data. Major banks including Goldman Sachs, Bank of America and JPMorgan Chase are quietly financing this expansion through back-leverage deals, blurring the lines between traditional lenders and alternative asset managers.
US insurers are moving fastest, with 65% planning increases versus 51% in Europe and 46% in the UK. Scale reinforces the pattern: 81% of firms with more than $25 billion in assets plan to boost allocations, compared with 46% of smaller firms. Life insurers lead at 73%, ahead of health insurers at 56% and property-and-casualty insurers at 40%, reflecting which balance sheets can absorb illiquidity.
The gap between appetite and execution capacity is widening. Only 30% of respondents said they have most of the in-house capability needed to research private markets, and 21% said they have none. Regulatory challenges were the most commonly cited obstacle to deploying more capital, named by 42% of respondents, ahead of liquidity concerns at 37% and governance challenges at 33%.
Within private credit, insurers are concentrating in investment-grade direct lending and private placements, cited by 40% of respondents, and investment-grade structured credit, asset-based finance and NAV lending, cited by 38%. "Private credit is a compelling opportunity for insurers, especially in the asset-backed space," David Morrow, Mercer's Global Insurance Proposition Leader, said.
The implications for policyholders and bondholders are significant. If private credit defaults rise as underwriting standards weaken, insurer solvency could come under pressure, potentially triggering credit rating downgrades and higher premiums. Investors will watch for the next round of state regulatory actions and the Mercer survey's 2027 edition for signs of whether the cat-and-mouse dynamic is accelerating or slowing.
This article is for informational purposes only and does not constitute investment advice.
