Private markets for US insurers: Navigating regulation
While regulation is important for all types of investors, it can be a defining constraint for insurers looking to expand into private markets.
Unlike other institutional investors, insurers operate within a statutory framework designed to protect policyholders and ensure solvency. This introduces a layer of complexity that directly shapes how private market investments are structured, reported, and managed.
Understanding that framework is essential to building a program that is both effective and sustainable.
At the core is U.S. statutory reporting. Private market investments are primarily classified under Schedule BA, which includes equity interests in private funds and other non-traditional assets.
These investments are marked at fair value, with valuation movements flowing through surplus, introducing potential volatility to an insurer’s balance sheet.
By contrast, certain private credit and structured investments may qualify for Schedule D treatment. These assets are typically carried at amortized cost, with income flowing through earnings with less direct impact on surplus. The distinction is significant, influencing not only financial reporting but also portfolio construction and manager selection.
Closely linked to reporting is the impact on risk-based capital (RBC). Private equity and other Schedule BA assets can attract materially higher capital charges, often in the range of 20–45% depending on the insurer type and asset class. In comparison, investment-grade private credit held on Schedule D may benefit from significantly lower charges, in some cases comparable to public fixed income.
This creates a natural tension. Higher-return strategies are often more capital intensive, while more efficient structures may limit return potential. As a result, insurers must actively balance return objectives with capital efficiency, ensuring that private market allocations remain aligned with overall capital budgets and surplus considerations.
Structuring plays a critical role in navigating this trade-off. The use of rated vehicles, particularly in private credit, infrastructure debt, and certain real estate exposures, can enable more favorable regulatory treatment. Achieving this requires careful attention to underlying asset quality, documentation, and alignment with the National Association of Insurance Commissioners (NAIC) guidelines and rating agency expectations.
Beyond national frameworks, state-level regulation adds another layer of complexity for firms. While the NAIC provides overarching standards, individual state regulators may impose limits on committed capital, require additional approvals, or apply more conservative interpretations of private market exposures. Early and proactive engagement with regulators is therefore a practical necessity, particularly when expanding into new asset classes or structures.
For insurers operating across jurisdictions, the challenge becomes more pronounced. Regimes such as Solvency II in Europe and the Bermuda Monetary Authority (BMA) framework introduce different approaches to capital, reporting, and valuation. These differences can influence not only allocation decisions but also how investments are packaged and governed at a group level.
Governance expectations are equally important. Regulators increasingly expect insurers to demonstrate robust oversight of private market investments, including clear investment policies, defined pacing strategies, and rigorous valuation processes. Integration into frameworks such as Own Risk and Solvency Assessment (ORSA) is critical to assessing the impact of private assets on liquidity, capital adequacy, and stress scenarios.
Insurers that approach private markets with a clear understanding of statutory treatment, capital implications, and governance expectations are better positioned to structure portfolios that meet both return objectives and regulatory requirements. Those that do not risk inefficiencies that can erode the benefits that private market investing can offer.
In the next post, we will turn to insurers with established programs and examine how the focus shifts from building exposure to enhancing performance, income generation, and diversification.
