UK pension insurers increase private credit exposure as S&P flags valuation risk

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UK pension insurers boost private credit

Highlights

S&P reports that hard-to-value private credit assets represent over 10% of portfolios at Legal & General, Standard Life, and Just Group, increasing liquidity and valuation risk.
UK insurers plan to assume up to £500bn in pension liabilities over the next decade, fueling demand for private credit managed by groups like Apollo, Blackstone, and Brookfield.
S&P stress tests show a UK life insurer with 12% private credit exposure retains sufficient capital to weather a 2008-style crisis, according to investment-grade loan ratings.

S&P findings on portfolio exposure

As reported by Financial Times, citing S&P, private credit holdings within the most opaque category of assets account for more than 10% of the portfolios of Legal & General, Standard Life and Brookfield-owned Just Group. The report warns that these hard-to-price assets pose a growing risk because they rarely trade and lack observable inputs for valuation, making them harder to sell in a crisis.

S&P uses Level 3 assets as a rough proxy for UK life insurers' exposure to private credit, while excluding some loan types such as infrastructure debt and certain mortgages. The ratings agency says this approach does not capture the full extent of exposure, adding that Pension Insurance Corporation, recently acquired by Apollo-backed insurer Athora, probably holds much of its private credit in the separate Level 2 category.

S&P analyst Charles-Marie Delpuech says market participants lack visibility into insurers' balance sheets and cannot easily assess how much private credit they hold. Insurers are not required to disclose where borrowers are based, which sectors loans finance, or whether the debt is held directly or through structured products.

Sector growth and resilience questions

Insurers focused on pension risk transfer deals plan to take on up to £500bn in British pension liabilities over the next decade, increasing demand for long-term assets that can match commitments stretching over several decades. At the same time, private capital groups including Apollo, Blackstone and Brookfield are expanding in the sector through insurer acquisitions and investment management partnerships.

These managers are helping drive a broader lending boom to AI software companies, data centres and middle-market borrowers, increasingly replacing banks in parts of the credit market. Much of that debt is finding its way into insurers' portfolios, drawing closer scrutiny from regulators and ratings groups in the U.S. and UK.

S&P says a stress test of a hypothetical UK life insurer with about 12% exposure to private credit still shows sufficient capital to withstand a shock similar to the 2008 financial crisis after the loans are assigned a range of investment-grade ratings. Insurers continue to defend the strategy, with L&G pointing to diversification benefits in longer-duration assets and Standard Life saying private assets are a strong match for insurer liabilities when the right investments are available.

Our earlier coverage on Pillar Life Insurance focused on AM Best keeping the insurer’s Financial Strength Rating and Long-Term Issuer Credit Rating under review with developing implications as its sale process took longer than expected. We noted that AM Best did not see a material change in Pillar’s financial position, but said the review would remain in place until it can meet the new management group and assess the company’s future direction.

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