Private Credit Risks Come Into Focus As Bermuda Insurers Reveal $435.7 Billion Exposure

Private credit’s growing footprint in the insurance industry is coming into focus after new disclosures revealed that Bermuda’s life and annuity reinsurers hold an estimated $435.7 billion in privately originated credit, with a significant portion tied to affiliated investment vehicles.

The findings offer a rare look inside a market that has drawn increasing scrutiny over asset valuations, liquidity risks and the growing relationship between private equity firms and insurers.

According to an analysis by S&P Global Market Intelligence, 122 Bermuda insurers reported approximately $1.29 trillion in cash and invested assets. Privately originated credit, including corporate private placements, mortgage loans and loan fund interests, represented roughly 33.7% of those holdings.

The exposure is also concentrated among a relatively small group of insurers. Athene Annuity Re Ltd., part of Apollo Global Management (NYSE:APO) insurance ecosystem, held $74.17 billion in private credit, representing 30% of the total reported exposure. The five largest holders accounted for 58.1% of the market.

Apollo-linked investment vehicles also featured prominently in the disclosures. AP Grange Holdings LLC represented $5.82 billion in holdings across 14 insurers, while two other vehicles, AMAPS 1 and AMAPS 2, accounted for a combined $5.78 billion.

Related-party investments accounted for another potential source of scrutiny. S&P identified $58.7 billion in affiliated private credit, equal to 23.8% of total holdings, with Athene accounting for approximately half.

The disclosures come as private credit faces broader questions about how financial institutions value assets that rarely trade on public markets.

Private Credit Valuations Under Scrutiny

S&P found that 60.1% of Bermuda insurers’ private credit holdings relied on Level 3 valuation inputs, compared with just 3.6% of public credit assets.

Level 3 assets are valued using estimates and assumptions rather than readily observable market prices, making it harder for outside investors and regulators to independently assess their worth.

The concern is particularly relevant when insurers hold debt issued by affiliated entities, where questions about pricing independence and valuation practices can become more complicated.

Despite the scale of those holdings, S&P found that only HSBC Life (International) provided detailed descriptions of its governance procedures for Level 3 valuations.

Corporate private placements made up the largest share of the exposure at $120.89 billion, followed by private asset-backed securities at $70.29 billion. Direct loans, often a focal point in discussions about private credit risk, totaled a comparatively smaller $9.35 billion.

Insurers have defended their allocation to less-liquid investments by pointing to the long-term nature of their liabilities. Bermuda reinsurers generally argue that annuity and pension obligations, particularly those with surrender protections, allow them to hold assets that may be difficult to sell quickly.

Still, the concentration of private credit among a handful of insurers, combined with affiliated exposures and reliance on less-transparent valuation methods, provides a closer look at the risks building alongside the insurance industry’s growing role in private markets.

Photo: Shutterstock