A dramatic increase in private credit investments by life insurers is creating systemic risk for investors, according to a report by the Financial Times quoting concerns aired by private equity investor J Christopher Flowers, the founder of JC Flowers & Co.
According to Flowers, who attempted a rescue of insurer AIG during the 2008 financial crisis, investors are underestimating the risks resulting from a flood of money into private credit loans and a push by insurers into these assets in search of higher investment yields.
The report cites data from JPMorgan as highlighting that assets managed by private credit investment funds have grown to a record $1.5tn, with annual growth more than doubling to 23% between 2020 and 2022, fuelled largely by a push by private equity groups to manage insurance assets.
Blackstone, Apollo, Brookfield, KKR and Carlyle Group, are among the large private equity firms who have have acquired or partnered with life insurers as a means to invest broader portfolios of credit-oriented assets over the past decade, with the insurers subsequently upping their investments into private credit assets incldiong securitised products, private debts, and lower-rated loans.
“Too many people have piled into private credit and it has a special feature that a chunk of it is funded with life insurance assets,” Flowers told the Financial Times. “One of these days, some life insurance company is going to get whacked on their private credit … You can have a run on a life insurance company.”
