Insurers Fuel Private Credit Boom As Banking Alternative

In Brief: In a recent episode of "The Big View" podcast, Reuters host Peter Thal Larsen interviews Huw van Steenis, partner at Oliver Wyman, about the explosive growth of private credit. The most striking insight: insurance companies have funded over 43% of private credit assets, up from 32% in 2021.

Big Picture Drivers:

• Growth: Private credit has expanded to roughly $2 trillion globally, with major players aiming to double assets over next five years

• Post-Banking Crisis: Stricter regulations after 2008 pushed banks to retrench, creating opportunity for alternative lenders

• Insurance Funding: Insurers have become dominant capital providers, seeking better returns for long-dated liabilities

• Asset Diversification: Expanding beyond traditional corporate lending into infrastructure, real estate, and specialty finance

Key Topics Covered:

• Market Size: Private credit represents roughly one-third of the $9 trillion investment-grade bond market

• Historical Context: Banks have been losing market share since the 1970s through waves of disintermediation

• Risk Assessment: Private credit funds match long-dated assets with long-dated liabilities, potentially creating greater stability

• Bank Response: Financial institutions are creating partnerships with private credit firms to maintain relevance

Key Insights:

• Structural Shift: Private credit is fundamentally restructuring financial risks by moving them from banks to specialized investors

• Asset Origination: Finding good assets to invest in—not fundraising—is the primary constraint on growth

• Future Growth: The next wave of expansion will likely focus on asset-backed lending (data centers, energy infrastructure)

• Regulatory Focus: Authorities are monitoring linkages between banking and private credit to prevent systemic risks

By The Numbers:

• $2+ Trillion: Current estimated size of the private credit market globally

• 43%: Portion of private credit assets now funded by insurance companies

• 15%: Projected annual growth rate for major private credit firms over next five years

• $5.5 Trillion: Size of specialty finance market that private credit is targeting

Memorable Quotes:

• "Insurers funded 32% of their assets back in 2021, today it's over 43%." - Hugh van Steenis

• "Private credit is almost like a rewiring of the banking system where the riskiest slices of risk are parceled out to investors." - Hugh van Steenis

The Wrap: Private credit represents a fundamental restructuring of financial risk, with long-term investors like insurance companies increasingly funding long-dated assets. While this model potentially offers greater stability than bank-based lending, challenges remain around credit quality, incentive alignment, and hidden leverage. As private credit expands beyond corporate lending into infrastructure and specialty finance, regulators are watching closely for any emerging systemic risks.