Key Takeaways
- • The SEC, through Chief Accountant Kurt Hohl and Division of Investment Management Director Brian Daly, reminded asset managers to "maintain rigor" over private-asset valuations as private credit in registered funds surged to $270 billion in 2025, a 60% jump from $170 billion in 2020.
- • The NAIC pegged life insurers' exposure to private credit at $1.21 trillion as of year-end 2025, while the Federal Reserve Bank of Chicago estimated roughly $1 trillion, linking the sector to bank counterparty risk.
- • Life insurers' exposure to private-credit funds, privately rated bonds and business development companies totaled $544 billion in 2025, according to the NAIC.
- • Banks' counterparty exposure to life insurers runs through credit lines, funding agreement notes, derivatives and syndicated private loans, and could lead to collateral haircuts if an insurer faces a run or regulatory seizure.
- • Regulators are focusing on Level 3 assets valued using unobservable inputs, and the NAIC's 2026 year-end reserve review will connect asset valuation quality to reserve adequacy.
Summary
Federal and state regulators are increasing scrutiny of private-credit valuations, raising concerns about banks' growing exposure to illiquid, hard-to-value private assets, according to American Banker. Private-credit loans are individually negotiated and do not trade on secondary markets, which has historically limited them to accredited investors. SEC Chairman Paul Atkins is seeking to broaden access for individual investors, and the SEC recently warned asset managers to maintain rigor over valuations and disclosure. In a joint statement, SEC Chief Accountant Kurt Hohl and Brian Daly, director of the SEC's Division of Investment Management, cited the growth of private credit in registered funds to $270 billion in 2025 from $170 billion in 2020.
Banks' exposure runs largely through life insurers. The Federal Reserve Bank of Chicago estimated life insurers had invested roughly $1 trillion in private credit, while the NAIC put the figure at $1.21 trillion as of year-end 2025. Life insurers are also significant financiers of the AI data center buildout, and experts warn that defaults or valuation losses on AI-linked loans could spread through the financial system. Private-equity firms have acquired many life insurers and, seeking higher yields, have built large private-credit and affiliated-company positions. The NAIC reported 139 life insurers holding a combined $321 billion in affiliated investment assets last year. Proposed bank capital changes, including lower risk weights, could further deepen banks' ties to private credit.
Experts cited concerns about valuation integrity and conflicts. John Mahon of Cleary Gottlieb said investor confidence in valuations is essential as retail access expands, particularly where performance fees are involved. Nadja Dreff of Morningstar DBRS said not every insurer suits illiquid holdings, noted that the industry has not been through a full credit cycle, and flagged potential conflicts when private-equity owners earn fees from insurers they control. Mayra Rodriguez Valladares of MRV Associates said state regulators are pressing insurers for greater transparency. Forensic accountant Tom Gober alleged that some carriers hold short-term funding agreements against thin cash reserves and have used offshore reinsurance to mask their financial health; these are his claims.
The NAIC is developing proposals to improve reporting of life insurers' private-credit valuations, which currently vary substantially, and is considering different treatment for operating subsidiaries and hard-to-value structures. Its 2026 year-end review will examine reserve adequacy alongside asset valuations. The SEC has stated that accurate valuation applies to all private funds and cautioned against boilerplate language and ignoring current market conditions. Dreff said Morningstar DBRS is assessing insurers' risk-management frameworks and governance, and summarized the stability question: the system holds only if insurers' illiquid liabilities match their illiquid private-credit investments.
Banks' exposure runs largely through life insurers. The Federal Reserve Bank of Chicago estimated life insurers had invested roughly $1 trillion in private credit, while the NAIC put the figure at $1.21 trillion as of year-end 2025. Life insurers are also significant financiers of the AI data center buildout, and experts warn that defaults or valuation losses on AI-linked loans could spread through the financial system. Private-equity firms have acquired many life insurers and, seeking higher yields, have built large private-credit and affiliated-company positions. The NAIC reported 139 life insurers holding a combined $321 billion in affiliated investment assets last year. Proposed bank capital changes, including lower risk weights, could further deepen banks' ties to private credit.
Experts cited concerns about valuation integrity and conflicts. John Mahon of Cleary Gottlieb said investor confidence in valuations is essential as retail access expands, particularly where performance fees are involved. Nadja Dreff of Morningstar DBRS said not every insurer suits illiquid holdings, noted that the industry has not been through a full credit cycle, and flagged potential conflicts when private-equity owners earn fees from insurers they control. Mayra Rodriguez Valladares of MRV Associates said state regulators are pressing insurers for greater transparency. Forensic accountant Tom Gober alleged that some carriers hold short-term funding agreements against thin cash reserves and have used offshore reinsurance to mask their financial health; these are his claims.
The NAIC is developing proposals to improve reporting of life insurers' private-credit valuations, which currently vary substantially, and is considering different treatment for operating subsidiaries and hard-to-value structures. Its 2026 year-end review will examine reserve adequacy alongside asset valuations. The SEC has stated that accurate valuation applies to all private funds and cautioned against boilerplate language and ignoring current market conditions. Dreff said Morningstar DBRS is assessing insurers' risk-management frameworks and governance, and summarized the stability question: the system holds only if insurers' illiquid liabilities match their illiquid private-credit investments.
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