Key Takeaways:
Insurers are raising premiums and tightening coverage for private-credit firms as SEC enforcement investigations and federal probes into fund valuations signal a looming legal storm.
Insurers are raising directors-and-officers premiums for private-credit firms as SEC enforcement investigations and a federal probe into BlackRock fund valuations signal mounting legal risk across the $1.7 trillion industry.
"There's more acute risk at the moment, and you don't know how that's going to flow through," said David Guild, head of financial lines at insurer MSIG USA.
At insurance broker Marsh, premiums for renewals of D&O policies covering private credit and private equity rose 3% in the first quarter from a year earlier, according to William Fahey, a managing director at the firm. For public companies overall, premiums were generally flat. Several insurance executives said they expect double-digit increases from a year earlier as policies come up for renewal.
The regulatory crackdown threatens to raise operating costs for private-credit managers already grappling with a surge of redemption requests from investors worried about loan portfolio valuations. Apollo Global Management Chief Executive Marc Rowan last month acknowledged the need for greater transparency, saying the firm plans to offer daily pricing for its private-credit funds by the end of September.
SEC and DOJ Investigations
Federal prosecutors are investigating valuation practices at a BlackRock private-credit fund that surprised investors with a sharp write-down of its loan portfolio, according to people familiar with the matter. The SEC has opened enforcement investigations into several large private-credit managers, and regulators have probed the exposure that banks have to the industry.
A flurry of lawsuits tied to private credit has followed the collapses of several companies where fraud was alleged. Josh Naftalis, a partner at law firm Pallas Partners and a former prosecutor in the Manhattan U.S. attorney's office, said to expect the industry to face more litigation and scrutiny from regulators. "The private-credit story is going to continue," Naftalis said.
Insurers Tighten Terms
Insurers are also tightening coverage terms for renewing or opening new policies, executives said. The concerns about valuations and disclosures are being fueled by the funds' exposure to software firms that some worry may be rendered obsolete by artificial intelligence.
"We just need to remain absolutely vigilant, cautious and diligent," said Macy Steers, co-head of financial lines at CNA Insurance.
Also raising the specter of lawsuits: a proposal by the Trump administration that is intended to open 401(k)s and similar retirement plans to private credit, private equity and other alternative investments. The Labor Department said earlier this year that plan sponsors that follow prescribed processes would have a "safe harbor" that aims to protect them against lawsuits.
Private-credit executives have said the fears are overblown. But the insurance market's response suggests the industry faces a period of heightened legal and regulatory exposure that could reshape how these funds operate and disclose their performance. The last time D&O premiums rose at this pace for a financial sector was during the 2023 regional banking crisis, when rates for mid-sized lenders jumped more than 20% within two quarters as lawsuits and regulatory probes followed the collapse of Silicon Valley Bank.
This article is for informational purposes only and does not constitute investment advice.
