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Insurers backing British retirement funds have invested about a tenth of their portfolios in opaque, hard-to-price private assets, according to an S&P report that warns such holdings pose a growing risk and could be difficult to sell in a crisis.
The research found that private credit holdings within the most opaque category of assets — those that rarely traded and lacked “observable” inputs for pricing — made up more than 10 per cent of the portfolios of Legal & General, Standard Life and Brookfield-owned Just Group.
Insurers specialising in pension risk transfer deals — which plan to take over up to £500bn in British pension liabilities over the next decade — have increased their allocations to private loans as they seek longer-term debt to match commitments to policyholders that can stretch across several decades.

Regulators and credit rating groups in the US and UK have started to study these holdings more closely as private capital firms such as Apollo, Blackstone and Brookfield have expanded in the sector, buying insurers or striking deals to manage their investments.
These asset managers are driving a boom in lending to AI software companies, data centres and a broader range of middle-market borrowers, increasingly replacing the banks that might once have provided the financing. Much of this debt has ended up in the portfolios of insurers.
S&P’s report cited growing concerns about how private credit would perform “in case of a deterioration”, and said market participants lacked visibility into insurers’ holdings.
“It’s difficult for market participants to fully understand how much private credit is on those balance sheets,” S&P analyst Charles-Marie Delpuech said of UK life insurers.
Insurers are not required to disclose, for example, where their borrowers are based, which sectors the loans are exposed to or whether the debt is held directly or through tranches of structured financial products.
As a rough proxy for UK life insurers’ private credit exposure, S&P examined so-called Level 3 assets, which lack observable market prices, and then stripped out some types of loans such as infrastructure debt and certain types of mortgages.
The measure does not capture the full extent of UK life insurers’ exposure to private credit. For example, S&P said, Pension Insurance Corporation, a group recently acquired by Apollo-backed insurer Athora, probably held much of its private credit exposure in a different category of “Level 2” assets.
S&P also stress tested a hypothetical UK life insurer’s portfolio with about 12 per cent exposure to private credit. After assigning the loans a range of investment-grade ratings, it found that the insurer would retain sufficient capital to withstand a shock similar to the 2008 financial crisis.
Insurers say they need access to more long-dated investments, which help them meet their long-term obligations to policyholders. L&G, for example, struck a deal last year with Blackstone to gain more access to US private credit.
“One of the reasons we use private credit, and private markets more generally, is to diversify our exposure in the longer-duration segment,” said Roman Hederer, head of portfolio management at L&G.
Nuwan Goonetilleke, head of asset management and retirement at Standard Life, said private assets were “a really good match” for insurers’ liabilities “if you can source the right assets”.

