NAIC private-credit report works from five categories as insurer exposure resists definition

Ask two people how much private credit sits inside U.S. insurer portfolios and they may not be counting the same instruments; the NAIC's report on the asset class opens on that definitional problem rather than treating it as a footnote. The regulator works from five categories, removes identifiable overlap when it aggregates them, and labels the resulting insurer-exposure figures best estimates based on current reporting requirements and available data.

The market those figures try to capture has moved past straightforward borrower exposure, taking in privately rated bonds, middle-market CLOs, BDCs, private credit funds, rated feeder structures, and other alternative-credit exposures alongside them. None of those instruments is obscure on its own; what has changed, in the report's account, is how broad the set has become and how elaborate the structures inside it are.

The spread among the estimates matters because overall U.S. private-credit market estimates can vary materially depending on which instruments are counted, so a supervisor comparing one insurer's filings with another's, or with a market total, is working from numbers built on different assumptions. Five categories with overlap stripped is an attempt to make the NAIC's own aggregation internally consistent even where the wider market's is not.

For a general account, the trade-off itself is legible: private credit can add spread and yield, and the properties that generate the return premium — illiquidity, opacity, bespoke structure, complexity — are the ones that raise the demands on underwriting, valuation, liquidity management, capital analysis and regulatory oversight. A regulator who compresses that into one sentence is pointing at where the examination hours will go.

The hardest question in the report concerns information: private placements are long-established tools in insurance portfolios, and the NAIC separates them from a newer concern, privately rated bonds that may incorporate alternative underlying assets or more complicated structures. Because private letter ratings are confidential and generally reach only the issuer and specified investors, less independent public information exists with which to assess collateral, deal terms, structural features and transaction mechanics; the distinction the report draws is about how much a supervisor can see rather than how much risk an insurer is running.

The NAIC names two initiatives meant to reduce reliance on credit-rating-provider ratings alone: authority for regulators and the Securities Valuation Office to challenge ratings viewed as unreasonable reflections of risk, and a due-diligence framework for the rating providers themselves. Put together, the two build a challenge mechanism and a standing process for judging the inputs that get challenged.

The due-diligence framework is the harder one to finish, because it asks the NAIC to form a view of the firms whose judgments the statutory framework leans on, and the ratings under scrutiny attach to structures with little or no market price to check them against. The authority to challenge a rating that looks unreasonable is narrower but fires case by case, and case by case is how a regulator learns where the disagreements are.

Both sit under work already underway: as this publication reported in September, insurers were given weeks to shape the capital charge on private credit while statutory reporting and capital treatment for illiquid assets sat on a short comment clock, and the NAIC's $1.2 trillion private-credit perimeter letter to Senator Warren put ratings-and-valuation review over ceded books, Bermuda's reinsurance market included. The document underlying that consultation is the reasoning layer where the regulator explains why this exposure resists the kind of reading a public bond rating permits.

Sequencing matters here: yield gets decided in the portfolio, while the cost of holding the asset gets decided in the capital formula, and the formula is where the private-credit questions have been migrating. Definitional work is upstream of both — until the instruments are named the same way on every balance sheet, a charge calibrated to them is calibrated to an approximation — and that is the direction the NAIC is moving, out of triage and into structural text.

Direct lending is the part of the story with the longest record: the NAIC traces insurer participation to the 1980s and notes that insurers expanded their role after banks tightened lending standards in the wake of the Global Financial Crisis. Those loans differ from broadly syndicated lending because they are privately originated and negotiated, generally held to maturity, and can offer more flexible execution; in exchange for taking borrower risk and accepting illiquidity, lenders may receive higher interest rates and an illiquidity premium.

Scale explains why supervision is intensifying: the NAIC cites market data showing direct lending represented more than half of global private-credit AUM by September 2025, against roughly 18% in 2010, and the block of the market that grew from that share to the majority of the asset class is also the block the report describes as generally held to maturity rather than traded. That is the combination supervisors are being asked to price.

What remains open is the denominator: calling its own exposure figures best estimates is a statement about measurement, and it arrives while the capital treatment for those holdings is still being drafted. The five categories and the overlap adjustment are the working vocabulary the NAIC has put on paper; whether a charge built on that vocabulary can be relied on by the insurers holding the assets is unresolved.