Your life insurance company just changed how it invests your premiums. And that shift could affect everything from your policy’s cash value growth to whether competitive annuity products stay on the market.
US life insurers are moving billions into private credit investments, according to AM Best’s recent analysis. The timing isn’t random—annuity sales hit $226.1 billion in the first half of 2025 alone, with projections exceeding $400 billion for the full year.
Translation? Your insurer needs higher-yielding investments to fund the guarantees they’re selling you. Private credit delivers those returns when traditional bonds can’t keep pace.
Why Life Insurers Are Ditching Traditional Bonds for Private Loans
Think of life insurers as banks for your future self. You pay premiums today. They invest that money. Decades later, they pay your claim or hand over accumulated cash value.
The problem: traditional investments—government bonds, investment-grade corporate debt—aren’t paying enough anymore. After the 2020-2022 interest rate whiplash, insurers face a dilemma.
They’ve sold millions of fixed indexed annuities promising 5-7% annual gains tied to stock market performance. But their bond portfolios? Yielding 3-4% at best.
The math doesn’t work.
Enter private credit: direct loans to mid-sized companies, real estate projects, and specialized borrowers. These pay 7-10% yields—enough margin to cover annuity guarantees and still turn a profit.
AM Best, the insurance industry’s top credit rating agency, notes this isn’t a reckless gamble. It’s calculated portfolio management.
Private credit carries higher risk than Treasury bonds, sure. But insurers spread that risk across hundreds of loans, often with collateral backing. The result: better returns without catastrophic exposure.
$400 Billion Annuity Boom: Where Your Retirement Money Goes
Half-year annuity sales of $226.1 billion aren’t normal. That’s a 15-20% jump from typical years.
Why the surge? Three factors collided:
- Baby boomers hitting retirement age in record numbers. 10,000 Americans turn 65 every day through 2030. They need guaranteed income streams annuities provide.
- Stock market volatility scared people into guarantees. After 2022’s brutal losses, fixed indexed annuities look safer than riding the S&P 500 roller coaster solo.
- Interest rates finally made annuities competitive again. When rates were near zero (2010-2021), annuities paid pathetic returns. Today’s 5-7% guarantees? Actually worth buying.
Fixed indexed annuities lead the pack. These hybrid products offer:
- Downside protection (you never lose principal in a market crash)
- Upside participation (you capture some stock market gains, typically 50-80% of index returns)
- Tax-deferred growth until you withdraw funds
Insurers sell billions worth monthly. But to honor those guarantees, they need investment portfolios that actually earn enough.
Traditional bonds? Not cutting it. Private credit? Delivers the juice.
How This Investment Shift Hits Your Wallet (3 Ways)
1. Better product pricing stays competitive
When insurers earn higher returns on their portfolios, they can offer you better annuity rates without going broke. If they were stuck earning 3% on bonds while promising you 6% returns, someone’s losing money—probably them, leading to failed companies.
Private credit’s 8-9% yields create breathing room. Insurers can pay competitive rates AND maintain financial stability.
2. Your policy’s long-term viability improves
Life insurance companies that manage portfolios wisely stay solvent for decades. That matters when you’re buying a 30-year term policy or a whole life plan meant to outlive you.
Diversifying into private credit alongside bonds reduces concentration risk. Your insurer isn’t betting everything on government debt or a single asset class.
Check your insurer’s AM Best rating. Companies rated A- or higher typically manage investments conservatively while seeking reasonable returns.
3. Product innovation continues (instead of market exits)
Remember when insurers fled unprofitable markets? California home insurance, anyone?
Life insurers face similar pressure. If they can’t earn adequate returns, they stop selling products or exit states entirely.
Private credit investments help them stay profitable enough to keep offering annuities, whole life policies, and other long-term products consumers need.
Should You Trust Your Insurer’s Private Credit Strategy?
Reasonable question. “Private credit” sounds risky—like subprime mortgages before 2008.
Key differences:
| Feature | 2008 Subprime Mortgages | 2025 Private Credit |
|---|---|---|
| Borrower Quality | Often no income verification | Mid-sized companies with cash flow |
| Collateral | Inflated home values | Real assets, equipment, receivables |
| Regulatory Oversight | Minimal before crisis | State insurance regulators monitor closely |
| Diversification | Concentrated in housing | Spread across industries, regions |
State insurance regulators approve insurers’ investment strategies. They require:
- Maximum exposure limits (no more than 10-15% of portfolio in private credit typically)
- Minimum credit quality standards for borrowers
- Regular financial reporting and stress testing
- Capital reserves to cover potential loan defaults
Translation: Your insurer can’t go crazy loading up on risky loans. Regulators cap the risk.
Still, check your insurer’s financial strength annually. LIMRA, the life insurance industry research association, publishes company performance data showing which carriers maintain strong capital positions.
What This Means for Your 2025 Insurance Decisions
If you’re shopping for life insurance or annuities right now, this investment shift creates a rare sweet spot:
Insurers can offer competitive rates (thanks to higher-yielding private credit portfolios) while maintaining financial strength (thanks to diversification and regulatory oversight).
But timing matters. Product availability and pricing fluctuate with investment conditions.
When you compare policies:
- Check the insurer’s AM Best rating. Stick with A- or higher. Financial strength matters more than an extra 0.5% yield.
- Ask about guaranteed vs. projected returns. Fixed indexed annuities show “illustrations” based on assumptions. Focus on the guaranteed minimum—that’s what you’ll actually get if markets tank.
- Understand surrender periods. Most annuities lock your money up 5-10 years. Early withdrawal penalties can hit 10% of your account value.
- Compare multiple carriers. Investment strategies vary. Some insurers lean heavily into private credit; others stay conservative. Shop around to find the right balance.
The $400 billion annuity market projection for 2025 suggests strong consumer demand continues. That competition keeps pricing favorable for buyers.
But don’t assume every product is a winner. Read the fine print. Understand what’s guaranteed vs. what’s “illustrated.”
Frequently Asked Questions
Why are life insurers shifting to private credit in 2025?
Life insurers need higher investment returns to fund the guarantees they’ve sold in annuity products. Traditional bonds yield only 3-4% annually, while fixed indexed annuities promise 5-7% returns. Private credit—direct loans to mid-sized companies—delivers 7-10% yields, creating the margin insurers need to stay profitable while honoring policyholder guarantees. With annuity sales hitting $226.1 billion in H1 2025, insurers must optimize portfolios to sustain product competitiveness.
How does private credit investment affect my life insurance policy?
Private credit investments help insurers maintain competitive product pricing and long-term solvency. When your insurer earns higher returns (8-9% from private credit vs. 3-4% from bonds), they can offer better annuity rates without risking insolvency. This improves your policy’s viability over 20-30 years and keeps insurers in the market instead of exiting unprofitable states. However, check your insurer’s AM Best rating annually—private credit carries more risk than government bonds, so financial strength matters.
Are fixed indexed annuities safe with insurers investing in private credit?
Yes, when bought from financially strong insurers with A- or higher AM Best ratings. State insurance regulators limit private credit exposure to 10-15% of total portfolios and require capital reserves to cover potential defaults. Fixed indexed annuities remain protected by state guaranty associations (covering $250,000+ in most states if an insurer fails) and offer principal protection against market losses. The key: choose carriers with proven risk management, not the highest advertised returns.
Why are annuity sales projected to exceed $400 billion in 2025?
Three factors drive record annuity demand: (1) 10,000 baby boomers retire daily through 2030, needing guaranteed income; (2) Stock market volatility (after 2022 crashes) pushed risk-averse investors toward principal-protected products; (3) Rising interest rates finally made annuities competitive—today’s 5-7% guaranteed returns beat the near-zero rates of 2010-2021. Fixed indexed annuities lead growth by offering downside protection with 50-80% upside participation in stock gains, appealing to retirees wanting growth without full market risk.
Should I buy an annuity now or wait for better rates?
Current market conditions favor buyers—insurers’ private credit strategies enable competitive rates while demand keeps pricing attractive. However, timing depends on your situation. If you’re within 5 years of retirement and need guaranteed income, today’s 5-7% fixed indexed annuity rates are historically strong. Waiting risks rate drops if markets shift or insurers reduce private credit exposure. Compare at least 3 carriers, focus on guaranteed minimums (not illustrated returns), and verify the surrender period fits your timeline. Rates fluctuate with investment conditions, so there’s no “perfect” moment—just find a product matching your risk tolerance and retirement timeline.
Bottom Line: Your Insurer’s Investment Strategy Matters
Life insurers shifting to private credit isn’t just industry inside baseball. It directly affects product availability, pricing, and long-term solvency.
The $400 billion annuity market signals strong consumer demand for guaranteed retirement income. Insurers’ private credit investments help them meet that demand profitably.
For you, that means competitive annuity rates should continue through 2025. But don’t buy blindly. Check financial strength ratings. Understand guarantees vs. projections. Compare multiple carriers.
Your retirement security depends on your insurer staying solvent for 30+ years. Their investment strategy—including this private credit shift—determines whether they’ll be around to honor those guarantees.
Choose wisely. Your future self will thank you.