S&P Global Ratings examined how US life insurers might weather a severe downturn in private credit. Despite insurers holding substantial exposure - Moody's estimates around 35 per cent of balance sheets - S&P's analysis focused on a narrower slice: roughly 7 per cent of total investments that are both privately rated and privately placed.

The report tested five stress scenarios, including default rates as high as the global financial crisis. Even under the most severe conditions - where 40 per cent of these privately-rated bonds default - most insurers would see minimal impact to their capital scores. The exposure is overwhelmingly investment-grade, which carries tiny default probabilities.

The authors acknowledged caveats. They excluded publicly traded instruments and holdings of foreign subsidiaries, which could harbour hidden risks. Private credit critics may argue the ultra-narrow definition understates true exposure. Still, the analysis suggests US life insurers have capital buffers sufficient to absorb even extreme stress in this opaque corner of their portfolios.