Over the past decade, the U.S. annuity market has undergone a significant shift as private equity-owned life insurers have expanded their influence, raising concerns among industry observers about the long-term risks associated with private credit investments underpinning these products. According to a 2025 working paper from the Federal Reserve Bank of Chicago, the market share of annuities sold by private equity-backed insurers nearly doubled from 8.5 percent in 2017 to 18 percent in 2024. This growth has been driven in large part—61 percent—by private credit financing.

This trend is notable as many traditional insurers lack direct access to private credit, placing them at a competitive disadvantage compared to firms supported by private capital. Much of the capital deployed by private credit funds is channeled into burgeoning sectors like artificial intelligence infrastructure, including data centers and semiconductor manufacturing. However, as highlighted by the Bank for International Settlements, some of these investments involve off-balance-sheet borrowing by AI companies, introducing layers of financial risk that remain poorly understood.

Industry experts caution that the key concern is not necessarily the underwriting quality of these assets but rather the timing and liquidity associated with meeting long-term retirement obligations. Annuities promise future income streams that must be fulfilled when due—not based on assumptions of asset appreciation or delayed liquidity events. The generation of sufficient, reliable cash flow from long-dated assets to service debt and policyholder benefits decades into the future is far from assured.

Moreover, shifts in policyholder behavior further complicate risk management. With the rise of market-indexed annuities, surrender and lapse rates have become more volatile and unpredictable. Sharp spikes in contract terminations—often occurring after surrender charge periods expire—could force insurers to liquidate illiquid assets prematurely, potentially at depressed prices. This dynamic raises the specter of a liquidity crunch within insurers’ portfolios.

In response to these challenges, some major annuity providers have started reporting net asset values of their private funds more frequently, although such valuations often rely on models rather than actual market transactions. Regulators have long been aware of emerging risks tied to private capital in life insurance. Since 2022, the National Association of Insurance Commissioners has been identifying concerns related to disclosure, affiliated transactions, and management compensation within the sector. The U.S. Treasury Department has also engaged with state insurance regulators to explore frameworks for safely managing nearly $1 trillion in private credit held by life insurers.

While experts emphasize that this is not a call for alarm or an indictment of current underwriting standards, they stress the importance of addressing liquidity risks proactively. The competitive advantage that private capital and illiquid assets currently provide may conceal vulnerabilities that would become acute in scenarios of widespread policyholder surrenders. Ensuring that insurers can meet their long-term commitments without forced asset sales in unfavorable markets remains a critical priority for regulators, company directors, and policyholders alike.