The convergence between alternative asset managers and life insurers is set to gain momentum as managers look for permanent capital and insurers seek higher-yielding assets, according to analysis from Morningstar DBRS.
In its latest commentary, the rating agency said large alternative managers have been acquiring or partnering with life insurers and reinsurers since 2019, then repositioning traditionally conservative portfolios.
Those portfolios have shifted from government securities and high-grade corporate bonds toward higher-yielding private debt, real estate and infrastructure.
Most of the private debt remains investment grade but is less transparent, less liquid and more complex than public markets, the report noted. Morningstar DBRS said these risks can be offset by the scale, diversification and risk frameworks of established managers, though it cautioned that many publicly traded alternative firms “have yet to be tested through a full credit cycle,” and that operational missteps remain a leading cause of failures among asset managers.
Recent market developments align with that assessment, with life carriers increasingly partnering with asset managers to build out private-market capabilities. Moody’s has reported that publicly traded US life insurers showed steady operating profitability in Q2 and are leaning more on such collaborations.
Access to insurers’ long-dated liabilities and annuity float provides alternative managers with semi-permanent capital and reduces dependence on cyclical fundraising. Because “the cost of capital on life insurance liabilities is materially lower than the returns required by closed-end fund investors,” managers can target a wider, less liquid universe of assets and seek spreads of 100 to 200 basis points over comparable public investments.
Those economics support more aggressive annuity pricing and the potential for market-share gains, Morningstar DBRS said. Alternative managers accounted for about one-third of US fixed annuity sales in 2024, more than double their 2018 share, supported by higher interest rates, equity volatility, deeper private equity ownership of insurers and aging demographics.
Around 25% of US insurers are now private equity-backed, the commentary said. Even so, insurers still hold roughly 60% or more of their portfolios in high-quality public fixed income and own about 40% of the US public corporate bond market but less than 10% of private credit.
The convergence is also reshaping how life carriers use reinsurance and capital markets to support investment-led strategies. By the end of 2024, US life insurers had ceded 38% of their total $2.4 trillion in reserves to Bermuda-based reinsurers and attracted more than $50 billion in new capital to Bermuda’s life reinsurance market since 2016.
With US life and annuity assets of $6 trillion and global assets above $20 trillion, and alternative managers advising on less than 15% of US assets and a smaller share globally, Morningstar DBRS expects the alignment between asset managers and insurers to continue over the coming years.
