Private credit has quietly become one of the hottest asset classes in the Canadian insurance industry. Once considered an exotic niche, it is now viewed as a structural component of insurers’ long-term portfolios – a source of yield, diversification, and duration at a time when public-market opportunities are thin.
At the AM Best conference, Steve Guignard (pictured centre right), senior director of client solutions at Sun Life Capital Management, described the momentum plainly:
“In terms of the demand or the interest in private credit, it remains strong … and I think it’s a factor of two things.”
The first, he said, is that Canadian insurers are getting more comfortable with the asset class. The second is the evolution of capital-efficient structures that make it easier to access private-market returns without unduly penalizing solvency ratios.
Private credit offers what traditional fixed income increasingly lacks – spread and control. Guignard noted that insurers are drawn by its liability-matching potential: “Life insurance companies that are hedging long-dated liabilities see it as a good liability-hedging tool that provides a spread premium over public instruments.”
The attraction isn’t speculative. “They go into the asset class for the yield premium, for diversification, and because they can obtain better sector and issuer diversification,” he said. With Canadian public-bond markets concentrated in financial issuers, private deals in infrastructure, real estate, and middle-market lending offer diversification that public credit cannot replicate.
Even so, Guignard stressed that enthusiasm is tempered by prudence. “The Canadian insurance companies are taking a very conservative approach to approaching the credit market,” he said – a reminder that most allocations are incremental, not transformative.
Private credit’s risk-reward profile depends on how far down the credit spectrum and how illiquid the investment. “Private credit is not a homogeneous asset class,” Guignard warned. “It spans investment-grade to below investment-grade across geographies and structures.”
That diversity is both an opportunity and a risk. Loan documentation varies, valuations are opaque, and exit options can vanish when liquidity dries up. To manage that, insurers are layering in deeper due diligence, independent valuation oversight, and longer-term liquidity planning.
Guignard expects the discipline to persist: “The demand remains strong, and I see it remaining strong for the next few years.”
From the supervisory side, OSFI is watching the same trend with cautious optimism. Jacqueline Friedland (centre left), the agency’s executive director for risk assessment, cited global data showing how large the market has become.
“Global private-credit investments have reached US $2.1 trillion in 2023 with annual growth rates of 20 percent in North America and Asia and 17 percent in Europe,” she said. “The use of private credit has been growing here in Canada.”
For regulators, that scale is impossible to ignore. Friedland said insurers are “balancing the advantages of diversification and stable long-term cash-flow benefits with risks such as credit, concentration, liquidity, and valuation challenges.”
She acknowledged why life insurers, in particular, are drawn to the space – long-term assets that match long-term liabilities – but she cautioned that these benefits “come with risks like valuation uncertainty, illiquidity, and complexity that require robust risk management.”
OSFI’s expectations are clear: “We expect insurers to understand their credit risk, as well as the model risk used to establish valuations, and ensure that these risks are appropriately assessed and monitored.”
That emphasis on model risk reflects growing concern that mark-to-model valuations can mask vulnerabilities until markets seize up. OSFI’s forthcoming international work through the IAIS will likely expand on that theme.
On the carrier side, Gord Dowhan (pictured right), CFO at Wawanesa Mutual Insurance, acknowledged that the asset class has “picked up a lot of momentum.” He called it “a unique opportunity to pick up some yield and diversify,” but underscored that success depends on knowing exactly what’s underneath.
“It is really understanding the underlying assets – they could be airplanes, mortgages, mineral rights – and that’s critical,” he said. The same yield that tempts investors also magnifies capital pressure: “The higher the yield, the higher the risk, and that’s reflected in your capital charges and management strategy.”
For multi-line insurers like Wawanesa, that calculation now extends across business lines. Life operations may find the illiquidity acceptable; P&C portfolios generally cannot.
The tone across the panel was measured: private credit is expanding, but not unchecked. It is becoming a strategic fixture – a way to earn incremental spread and diversify balance sheets – yet one that demands transparency and regulatory engagement equal to its promise.
As Guignard put it, “The demand remains strong … and I see it remaining strong for the next few years.”
The difference, this time, is that both investors and supervisors are watching the same numbers – and, for once, speaking the same cautious language.
