Private debt keeps gaining ground in insurance portfolios for many reasons.
Private debt is increasingly valued for its potential to help insurers operationally and strategically: support liability matching, improve portfolio design, diversify underlying exposures and, when underwritten well, add resilient excess return. At AB’s April 2026 Rethinking Insurance Forum, guest panelists Kyle Audley of Standard Life and Neil Taylor of RiverStone International discussed the opportunities and pitfalls with AB’s Amy Ward and AB CarVal’s Jody Gunderson.
From Niche Allocation to Portfolio Core
Private debt is now part of the strategic conversation for many insurers, not just a tactical search for extra spread. That's partly a response to a long stretch of low public-market yields, but also for more structural reasons: banks have stepped back from parts of the lending market, while private origination has become broader, deeper and more institutional.
Private Credit Offers More Than Just Yield
For insurance investors, the case for private debt doesn't stop at a potential yield advantage. Its real appeal is often in the shape of the cash flows and the flexibility of the structures. In matching-adjustment portfolios, for example, private assets may help sculpt cash flows more precisely, provide longer-duration exposure and support inflation-linked or amortizing structures that are harder to source in public markets.
That helps explain why insurers' interest has widened beyond corporate direct lending. Infrastructure debt, real estate debt, direct lending and asset-backed finance can all play different roles depending on an insurer’s liability profile and balance-sheet objectives. The trend is to use private debt where bespoke structures and differentiated sourcing can create a better fit than public debt can offer.
Start With Liabilities, Not Asset Class Labels
Aset-class generalizations can be misleading. A long-dated life insurer with stable cash flows can usually tolerate more illiquidity than a shorter-tail non-life platform that may need to respond quickly to claims or changes in business volume. So a private debt allocation can't be judged in the abstract. It has to reflect duration needs, liquidity budget, expected business growth and the risk of becoming a forced seller at the wrong time.
That insurer-specific lens also shapes what private debt is being asked to do. For some portfolios, it's primarily an income enhancer. For others, it's also a diversification tool or a way to access different risk premia through areas such as asset-backed finance, real estate debt or more specialized private credit exposures. Either way, the liability profile comes first: the allocation follows from that, not the other way round.
Capital Treatment Can Change the Investment Case
For insurers, an asset only works if it fits within the capital regime. Solvency II, matching-adjustment rules, ratings treatment and local regulatory differences can all reshape the relative appeal of private assets. An unrated exposure may be perfectly acceptable in one framework and much less compelling in another. The same goes for securitized assets, prepayment features, call protection and the extent to which contractual cash flows are recognized in capital calculations.
That's why private debt selection is as much about structure as spread. A deal that screens well on headline yield can look much less attractive once capital efficiency, ratings sensitivity or optionality are considered. For insurance investors, that means credit analysis and balance-sheet analysis can't sit in separate boxes. In our view, they need to work together.
The Illiquidity Premium Isn’t a Free Gift
Private debt still offers the prospect of meaningful excess return. For many insurers, a diversified allocation may still imply an illiquidity premium in the broad range of 100 to 200 basis points. But that's not automatic. It depends on where valuations sit, how fast capital is deployed and whether managers can avoid the crowded parts of the market where investment discipline tends to fade.
For example, take a private construction loan backed by a data center. In a base case, it may look like a five-year exposure. But if refinancing doesn't materialize, recovery may depend on organic cash flow instead, extending the life of the asset. For insurers, the real test isn't just the headline spread, but how the cash flows behave if the easy exit disappears.
Underwriting Has Become Even More Important
Private debt's breadth is part of its attraction, but that diversity also raises the underwriting bar. Investors must think beyond default rates to issues such as weaker lending standards, ratings migration, prepayment uncertainty, fraud and changing sector fundamentals. The impact of artificial intelligence on software and adjacent sectors is one obvious example of how quickly a seemingly stable credit story can change.
That's why robust underwriting has to be grounded in downside analysis, not just a comfortable base case. Because insurers must live with private assets for years, collateral quality, covenant protection, recovery prospects and ratings resilience all matter. In a market that can look calm until it suddenly doesn't, process discipline is vital to mitigate downside risk.
Where Opportunities Still Look Strongest
Even with those caveats, the opportunity set still looks attractive to us. Infrastructure remains a clear focus, despite tighter spreads, especially where long-duration financing needs intersect with structural themes such as energy transition, digital networks and social infrastructure. Asset-backed finance also stands out, not least because it offers access to diversified collateral pools in market segments where banks continue to retreat.
There’s also growing interest in areas that may benefit from dislocation, including secondaries and selective stressed strategies. As performance dispersion widens, manager selection matters more. For insurers who access private debt through external managers, underwriting quality, portfolio construction and genuine sourcing edge are likely to separate the better outcomes from the merely acceptable ones, as we see it.
A More Demanding, More Useful Allocation
Private debt's rise in insurance portfolios reflects a more mature investment case than a simple comparison of spreads. In our view, its strongest appeal is functional as much as financial: it has the potential to help insurers match liabilities, improve portfolio design, access differentiated assets and access attractive excess income. We think the next phase will be most rewarding for investors who know exactly what roles private debt can play, how it behaves under stress and which managers are equipped to deliver it with real discipline.