Morgan Stanley: Life Insurers Emerge as Powerhouses in Credit Markets

Life insurance companies have become influential players in the credit markets, according to Morgan Stanley. Their growth in the market is not just due to asset growth, but also reflects a strategic evolution in asset allocation strategy. This shift has positioned them as emerging powerhouses in credit markets.

Life insurance companies have rapidly evolved into influential players in the credit markets, according to Morgan Stanley. Their growing footprint is not merely a function of asset growth but reflects a strategic evolution in asset allocation strategy, driven by shifts in their product offerings, regulatory frameworks, and the rise of alternative asset management [1].

The post-pandemic macroeconomic environment has bolstered this transformation, while higher interest rates have altered their product range. The Federal Reserve's rise in interest rates from near-zero levels to over 5% between 2022 and 2024 has significantly benefited life insurers, allowing them to offer higher crediting rates on fixed annuities. This makes them attractive to retirees and those approaching retirement seeking tax-deferred growth and predictable retirement income [1].

According to LIMRA, total U.S. annuity sales hit $434 billion in 2024, a 13% increase from the prior year. Unlike variable annuities, fixed annuity products contribute to general account flows, meaning the assets to defease (or offset) the annuity liabilities sit on insurance company balance sheets. For life insurers, the hefty surrender penalties in annuity products make these flows sticky capital to invest and potentially harvest illiquidity premia [1].

On the back of these flows, U.S. life insurance companies have seen their general account assets under management (AUM) expand by $1+ trillion since 2021, outpacing the expansion of traditional credit markets. Life insurers are also among the largest holders of public corporate bonds, with a ~30% share of the outstanding U.S. public corporate credit market [1].

One of the most notable shifts has been the increased allocation to securitized credit. From 2021 to 2024, life insurers’ holdings in ABS, CLOs, RMBS, and agency securities rose by over 10%, outpacing the growth of their overall portfolios. This is fueled by the rise of private equity ownership and outsourced asset management. PE-backed insurers have aggressively expanded into higher-yielding private placements [1].

The strategic evolution of life insurers has positioned them as key intermediaries in credit markets, reshaping capital flows, risk pricing, and financial intermediation. Companies like MetLife (NYSE:MET), Prudential Financial (NYSE:PRU), Lincoln National (NYSE:LNC), and Principal Financial (NASDAQ:PFG) are among those leading this transformation [1].

Moreover, in Asia, RHB Banking Group has signed exclusive 20-year bancassurance and bancatakaful agreements with Tokio Marine Life Insurance Malaysia and Takaful Malaysia, effective 1 August. Under the deal, RHB will distribute life insurance, family takaful, and general takaful products through its branches and digital channels. This move supports RHB’s strategy to grow non-interest income [2].

References:
[1] https://seekingalpha.com/news/4477120-life-insurers-are-the-emerging-powerhouses-in-credit-markets-morgan-stanley-says
[2] https://asianbankingandfinance.net/insurance/news/rhb-signs-680m-bancassurance-deals-tokio-marine-life-takaful-malaysia