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Private credit is debt or debt-like financing that is not issued or traded in public markets, but instead negotiated directly between borrowers and investors. The direct nature of the transaction allows for terms and conditions to be negotiated to meet the specific needs and objectives of the individual borrower as well as the lender.

However, the customized nature of these investments results in the lack of a robust secondary market and, therefore, less liquidity compared with public debt. Accordingly, investors are compensated higher spreads and yields relative to public debt with otherwise similar characteristics. In addition, due to a lack of transparency and infrequent valuations, private credit is more difficult to price than public debt.

As banks tightened lending standards following the 2008 financial crisis, middle-market firms—and, increasingly, larger corporations—turned to private credit as an alternative source of debt capital. Assets under management have grown rapidly since then. In 2023, the private credit market reached an estimated $1.8 trillion. [1] Life insurers are a major participant in private credit lending, as long-dated private credit matches well with the duration of life insurers’ long-term liabilities – future claims. These trends are expected to continue. For example, Preqin estimates that the private credit market will reach $2.6 trillion by 2029, while Blackrock anticipates $4.5 trillion by 2030. [2]

In addition to illiquidity, pricing difficulties, and lack of transparency, there are additional risks that can potentially arise as private credit lending continues to grow and evolve in the coming years. With the entry of other market participants focused on alternative assets into private credit lending, it is possible that the nature and risks of private credit will change. It may transition to include transactions that are more esoteric, have lower credit quality, or perhaps are structured differently than previously seen (i.e., asset-based lending).

Thus far, private credit has generated attractive returns due to higher risk-adjusted yields, but the strong performance has been generated in a relatively benign credit environment. As private credit evolves and expands, there is no assurance that this trend will continue. The solid historical performance of private lending may not translate to comparable performance in the future as the market scales up to a larger and broader base of investments.

State insurance regulators and �Ӱ���Ƶ staff, including the Capital Markets Bureau and the Securities Valuation Office are monitoring insurer investments in private credit and updating regulatory frameworks in response these investment shifts. This task is primarily under the purview of the Financial Condition (E) Committee and relevant task forces and working groups. To better respond to these issues, beginning in 2026, the Valuation of Securities (E) Task Force is being restructured into four groups: Invested Assets (E) Task Force; Investment Analysis (E) Working Group, Investment Designation Analysis (E) Working Group, and Credit Rating Provider Due Diligence (E) Working Group.

In 2025, the Valuation of Securities (E) Task Force adopted a number of amendments to the Purposes and Procedures Manual of the �Ӱ���Ƶ Investment Analysis Office (P&P Manual). These include amendments which improve the transparency of private-credit investments such as requiring the filing of Private Rating Letter Rationale Reports within 90 days of the Annual Update or a Rating Change and requiring that these reports “possess analytical substance”. The Statutory Accounting Principles (E) Working Group has exposed changes to annual financial filings to improve the reporting of private credit by insurers. [1]