The case for private markets for insurers
Beyond public fixed income, we believe insurers should continue building out or refining their private market portfolios as well. Private credit remains an overweight position in Invesco strategies relative to other assets given attractive all-in yields, seniority in the capital structure, and reasonable spreads over liquid credit. Recently there has been much discussion about credit events in private markets and whether they are signs of broader stress to come or idiosyncratic events; in our view, they are more likely to be idiosyncratic with current spreads still providing reasonable compensation for the risk. Similarly, while commercial real estate has been under pressure in recent years, the current environment can offer favorable CRE debt yields – we believe this is an opportunity which could enhance capital-adjusted returns for a wide variety of insurers globally.
Within private equity, we continue to encourage caution for our clients. Substantial dry powder and high valuations make it a difficult environment from a technical standpoint, and with financing levels still higher than the recent past, the return potential from deploying leverage is not as attractive as it was a few years ago.
Regulatory issues to watch
From a regulatory perspective, there are a number of items warranting continued close monitoring going in to 2026.
European and UK insurance portfolios continue to be shaped by Solvency II and Solvency UK reforms, coupled with the macroeconomic backdrop of historically low spreads in the public markets, 2025’s policy induced volatility, and ongoing concerns around inflation.
The EU’s upcoming Solvency II revisions (2026–2027) aim to significantly lower capital charges for high-quality senior securitization tranches and enhance treatment of infrastructure and long-term equity exposures. These changes position senior structured credit — such as asset-based finance, commercial mortgage loans, and senior tranches of collateralized loan structures (CLOs) — as attractive options for insurers seeking capital-efficient yield and portfolio diversification.
In the UK, the Prudential Regulation Authority (PRA)’s proposed updates to the Matching Adjustment (MA) framework are expanding insurers’ access to private markets. The Matching Adjustment Investment Accelerator (MAIA) introduces pre-investment flexibility, enabling faster deployment into eligible illiquid and structured assets. Additionally, 2024 reforms — removing the cap on sub-investment grade (SIG) assets and introducing the highly predictable (HP) asset bucket — have prompted insurers to explore CLO tranches for their blend of enhanced yield and structural resilience. With pension de-risking and bulk annuity volumes reaching record levels of £10 billion annually, the PRA’s MA reforms broaden the range of eligible assets — such as structured credit, broadly syndicated loan and private credit CLOs — and enhance deployment speed into illiquid credit for UK life insurers’ annuity portfolios.
In the US, regulators continue to monitor and consider refinements to the reporting requirements for alternative asset manager-backed insurers. Additionally, insurers in the US continue adapting to recent changes to bond definitions and the associated reporting considerations. One topic getting more attention is the credit ratings process and the prevalence of private ratings in particular; with the NAIC taking a more active role in reviewing and potentially contesting ratings, this is an area that has garnered significant commentary from carriers.
In Asia broadly, introduction of, or updates to, existing, risk-based capital (RBC) regimes – as well as financial reporting standards – have been key considerations for insurers in the region. Private markets exposure has gradually been trending upwards as insurers seek to diversify their portfolios and capture spread; still, according to a recent report, insurers within Asia remain generally under-allocated to private markets compared to their European/UK and US counterparts. Insurers, especially the lifers, remain well-positioned to take advantage of the characteristics of private assets, buoyed by on-going new business inflows as well as in-force blocks. Credit focused strategies (e.g. direct lending, real estate debt as referenced above, and structured credit (especially senior tranches of collateralised loan obligations) tend to be quite appealing with their ability to generate additional sources of risk premium as well as helping diversify existing public fixed income allocation. Of course, this requires a more rigorous approach to due diligence – whether directly at the security level or even assessing asset managers who run such strategies. Under RBC regimes generally, private assets can offer an advantageous risk-reward profile and help make portfolios more efficient – albeit with the potential introduction of other types of risk which insurers need to understand and manage appropriately. We feel a disciplined and nuanced approach to private markets investing would continue to be the focus for insurers in the region.
Ahead of and alongside these reforms, insurers continue to focus on increasing allocations to credit‑focused strategies that complement public fixed income, notably infrastructure debt, real estate debt, and direct lending. These assets capture yield uplift and improve portfolio diversification with a key focus on portfolio resilience. As regulatory frameworks evolve, insurers are refining asset-liability management and governance to balance capital efficiency, yield, and portfolio resilience.
Challenges warrant a defensive posture
In summary, we expect 2026 to be another challenging year for insurance investors. Investment opportunities certainly still exist, but we believe full valuations and mixed signals from the real economy call for a defensive posture.
