Private markets for US insurers: Establishing the foundations
While public fixed income has long anchored general account portfolios, sustained competitive pressure and the need for improved capital efficiency are prompting insurers to broaden their approach.
Private markets are increasingly part of that shift.
Across private credit, infrastructure, real estate, and equity, insurers are seeking potential sources of higher return, differentiated collateral, diversified risk and improved Sharpe ratios.
However, incorporating private assets is not simply a matter of widening the allocation net. It requires a deliberate, institutionally aligned approach that reflects the unique constraints of insurance balance sheets.
Recent headlines have put private credit under a brighter spotlight, with concerns around BDCs, redemption pressure, gating, valuation uncertainty and exposure to software-related borrowers contributing to a more cautious market tone. For insurers, this does not change the need to understand private markets, but it does sharpen the starting point: any allocation must be judged not only by expected return, but by how it behaves under stress within the general account, where illiquidity, capital treatment, surplus volatility and liability matching matter.
We believe a successful program begins with strategic clarity. Insurers should define the role private markets are expected to play within the broader portfolio, whether to potentially enhance income, support surplus growth, or improve diversification. These objectives directly influence portfolio construction, governance frameworks, and capital planning decisions.
Equally important is internal readiness. Private markets introduce structural complexity including illiquidity, irregular cash flows, and valuation considerations. Without appropriate governance, resourcing, and operational infrastructure, these investments can create unintended risks. As a result, insurers should ensure that decision-making frameworks, reporting structures, and oversight mechanisms are sufficiently robust before deploying capital.
Unlike other institutional investors, insurers must align investments with statutory accounting requirements, risk-based capital (RBC) implications, and asset-liability management (ALM) constraints. Classification differences, such as Schedule D versus Schedule BA, can materially affect capital charges and surplus volatility, making structuring a critical component of implementation.
From a liquidity standpoint, these illiquid assets must be carefully matched with long-duration liabilities or surplus capital, as they cannot be relied upon to meet short-term obligations. This reinforces the need for rigorous ALM analysis, stress testing, and ongoing liquidity management.
Portfolio construction, therefore, becomes a balancing exercise between yield, capital efficiency, and liquidity. Early allocations often prioritize income-oriented strategies such as private credit, real estate debt, and infrastructure, given their more predictable cash flows and relatively favorable capital treatment. As programs mature, insurers may expand into private equity, secondaries, and co-investments to help enhance return potential and diversification.
Building a 5–10% allocation typically occurs over a multi-year horizon, requiring disciplined commitment planning and cash flow forecasting. Overcommitment strategies can help manage the lag between commitments and capital deployment but must be calibrated carefully to avoid liquidity strain. Execution also plays a defining role in outcomes. Manager selection, investment structuring, and implementation pathways all contribute to performance. In our experience, many insurers, particularly in the early stages, leverage external partners to access expertise and scale capabilities, while maintaining a focus on capital-efficient structures that align with regulatory requirements.
Ultimately, private markets can potentially offer a meaningful opportunity to strengthen insurer portfolios, but only when implemented with discipline and alignment across strategy, governance, and operations. A well-constructed program reflects not just investment ambition, but a clear understanding of regulatory frameworks, liability structures, and long-term organizational commitment.
In the next post, we will examine how regulatory considerations can shape private markets programs, and how insurers can seek to structure investments to balance return objectives with capital efficiency.
