Growing acceptance of private assets shows up among insurers’ products

PRIVATE credit is growing as a share of insurers’ portfolios, and is even making its way into products for high-net-worth (HNW) clients. This increasing comfort represents an opportunity for private credit managers, given the patient capital that insurers can draw on.

“If you look at the balance sheets of most insurers, they have heavy exposure to public assets,” said Matthew Michelini, partner and Asia-Pacific head at alternative assets manager Apollo Global Management.

Often thought of as safer, public assets have lately become more volatile and more correlated. Private assets, meanwhile, have shown steady performance.

“What is increasingly uniform is the understanding that private assets can be safe,” Michelini said, noting that private credit assets, in some jurisdictions at least, bear a capital charge that is in line with their economic risk.

“As a result, we’ve seen insurers say private assets are needed in our portfolios,” he added.

To be clear, most life insurers are focused on investment-grade lending rather than the kind of lending to middle-market companies that is most commonly associated with the idea of private credit.

Allocation is higher in the United States – at 36 per cent, according to Moody’s – than in Apac, where it is 6 per cent.

The difference is partly due to the relative maturity of the US’ private credit market and partly to regulations governing capital requirements.

There is a desire to increase private credit exposure among insurers, according to a survey conducted by Goldman Sachs Insurance Asset Management.

Its Global Insurance Survey 2024 showed that 53 per cent of insurers ranked private credit among the top five asset classes with the highest expected returns over the next 12 months.

The survey covered 359 chief financial officers or chief investment officers at insurers around the world, and was conducted from Jan 17 to Feb 9 this year.

This increasing comfort with private credit is taking shape in a number of ways. An article by McKinsey & Company noted that historically, insurers might buy private loans from third parties.

“Now, insurers and private capital firms are using life insurance books to build out differentiated asset management capabilities, or partnering with others to do so,” the consultancy said.

“In private credit, for example, they may own platforms for making loans directly, build syndication businesses to sell portions of the loans to third parties, and raise third-party capital to manage loans for other investors.

“In real assets, they may own companies that operate the assets – such as real estate, energy, and infrastructure – and ownership may lead to higher returns.”

A number of insurers have also begun offering products to their HNW clients that incorporate private credit.

FWD, for instance, last year partnered Apollo to offer a product for HNW individuals that allocates a portion of premiums to an Apollo alternatives fund.

The product is part of a range of offerings FWD is building to serve HNW investors, who have unique needs.

“We recognise the growing appetite of HNW individuals for alternative investment opportunities, such as private equity, venture capital, real estate and hedge funds,” said Adrian Vincent, chief executive of FWD Singapore.

FWD’s partnership with Apollo remains unique within the insurance space, but there are indications that other insurers recognise similar demands among their clients.

Singlife, which also has its own investment platform, this year began offering its HNW clients access to a private equity fund managed by Neuberger Berman.

The fund has an evergreen structure – clients can redeem a portion of their investment every month, instead of being locked in for a fixed period.

“Expanding our private markets offerings is a key part of our strategy to provide clients with a comprehensive suite of investment solutions,” said Farooq Lone, CEO of the insurer’s investment platform Grow with Singlife.

“Singlife actively explores opportunities to introduce additional private market products that align with our clients’ risk profiles and investment objectives. While we’re unable to disclose specific details at this time, we are committed to delivering value through carefully selected investments.”

Bernhard Kotanko, senior partner at McKinsey & Company, expects to see more insurers integrate private market products into their offerings – especially for HNW clients.

“Private capital and private investments are central to innovate insurance offerings and economics,” Kotanko noted. “Insurers integrate private capital and private investments in their offering for customers, mainly for wealth-oriented investment-linked products, but also within the strategic asset allocation in participating products, which allow benefit from the special private assets.”

Apollo’s Michelini believes the next wave of adoption among insurers is likely to be of investment-grade asset-backed private credit, which has actually performed better than investment-grade corporate credit on a historical basis.

He also expects to see a variety of private asset-backed innovations. “I think you’re going to see all kinds of flavours,” he said.

“Product is only one part of the equation. Success will be based on brand, distribution, the strength of relationships with customers, and how the economics gets divided among the insurance company, asset manager and distributor.”