US Life Insurers and Alternative Asset Managers Deepen Strategic Partnerships

The partnership between alternative asset managers and U.S. life insurers is intensifying as both parties seek strategic advantages: alternative managers are pursuing permanent capital, while life insurers aim for higher-yielding assets. Since 2019, significant alternative managers have been acquiring or collaborating with life insurers and reinsurers, shifting investment portfolios from traditional safe assets like government securities and high-grade corporate bonds to higher-yield sectors such as private debt, real estate, and infrastructure. While much private debt remains investment grade, it carries increased complexity, lower liquidity, and less transparency, risks mitigated by the scale and risk management frameworks of experienced managers. This trend aligns with recent market data showing life insurers expanding private-market investments through asset manager partnerships. Moody’s reports stable operating profitability for publicly traded U.S. life insurers in Q2, alongside deeper collaboration with alternative managers. These partnerships provide asset managers access to insurers’ long-dated liabilities and annuity float, creating semi-permanent capital and reducing reliance on fundraising cycles. The lower cost of capital associated with life insurance liabilities enables managers to target less liquid assets while capturing spreads of 100 to 200 basis points above similar public investments. As a result, alternative managers have increased their role in fixed annuity sales, accounting for about one-third of U.S. sales in 2024—more than double their share from 2018. Contributing factors include elevated interest rates, equity market volatility, growing private equity ownership of insurers, and demographic trends favoring annuities. Around 25% of U.S. insurers are now private equity-backed, yet insurers maintain a significant portion of portfolios in high-quality public fixed income and retain substantial holdings in public corporate bonds. Private credit exposure remains under 10%. Reinsurance and capital markets are also evolving to support these investment strategies. By the end of 2024, U.S. life insurers had ceded 38% of their $2.4 trillion reserves to Bermuda-based reinsurers, attracting over $50 billion in new capital since 2016. With U.S. life and annuity assets totaling $6 trillion and global assets exceeding $20 trillion, and alternative managers currently managing under 15% of U.S. assets, Morningstar DBRS forecasts ongoing growth in partnerships between alternative managers and life insurers in coming years. The growing collaboration aims to optimize asset-liability management by tapping into less liquid but higher-returning asset classes while managing associated risks through diversified portfolios and institutional frameworks. This dynamic is reshaping investment strategies and product offerings within the life insurance sector, potentially influencing industry profitability and market competition. Stakeholders should monitor regulatory, operational, and market developments as these partnerships evolve.