Investors are fleeing US life insurers as concerns mount over their growing exposure to private credit assets. Insurance stocks have underperformed the S&P 500 this year, while insurers' bonds now trade at yields about 1 percentage point above Treasuries, up from late January levels. The sector ranks among the worst performers in the US investment-grade bond index.

Life insurers have increased their private credit holdings substantially in recent years, with industry exposure reaching about 10 percent of total assets by late 2025, according to Barclays analysis. Some insurers affiliated with private equity firms like Apollo-backed Athene and KKR-backed Global Atlantic could have exposure exceeding 15 percent. The opaque nature of these investments, often rated by small agencies using private letter ratings, has raised red flags among investors.

Regulators are taking notice. The National Association of Insurance Commissioners now has authority to override private letter ratings that differ from their analysis by more than three notches. Fitch estimates that if most private credit ratings were downgraded by three levels, the industry's risk-based capital ratio would fall from 440 percent to 394 percent. With limited transparency about underlying collateral - whether restaurant franchises, music royalties, or data centers - investors are demanding more disclosure or demanding higher yields before buying insurers' bonds.