A global rotation: the private market playbook for insurance portfolios and considerations for Hong Kong

Globally, insurers have seen tremendous growth in private market investing. Bank retrenchment and yield enhancement may have been the initial drivers (and continue to be), however over the last few years, new market dynamics have further supported the adoption of privates.

Strategic partnerships between insurers and alternative asset managers are accelerating the adoption of privates by helping to improve origination, underwriting and access to proprietary deal flow. Structures such as sidecars and reinsurance platforms can further enhance insurers’ capital flexibility and support the use of privates. Product innovation has further facilitated private market allocations by widening the investment toolkit for insurers.

Many risk-based capital frameworks around the world continue to be mostly supportive of privates as well, which has helped fuel growth. This is true across Asia as different capital regimes are being rolled out, especially in Hong Kong. In turn, these investors now represent a growing source of capital for private credit globally.

Evidence from developed markets

The rotation into privates has advanced in developed markets. US insurers have long been significant investors in corporate private placements, commercial mortgage loans and middle-market direct lending. In the latest wave of private credit growth, US insurers are now leaning into an expanded credit universe including asset-based finance, NAV lending, residential lending, infrastructure and structured alternatives. Among US life insurers, private credit now makes up 21% of portfolios on average¹.

Europe, supported by a solvency regime favourable to direct lending, unrated credit and infrastructure has spurred private credit to roughly 13% of portfolios, on average and in the UK, 18% on average².

Asia Pacific insurers remain earlier in the private credit cycle, at around 6% on average. Yet the pace is picking up as regulatory frameworks modernise, and allocators seek alternatives to increasingly compressed bond spreads³.

This geographic lag creates a big opportunity. The region is poised to follow the same trajectory of the US and Europe a decade earlier – and with a broader starting toolkit⁴.

The compelling characteristics of private credit

At their core, private credit’s attributes tend to be naturally aligned with insurance liabilities; seeking to deliver contracted or predictable cash flows, covenant protections that help mitigate losses, and lower downgrade behaviour that helps moderate regulatory capital through the cycle.

Further, lower mark-to-market volatility reduces reported balance sheet swings. Illiquidity and complexity premiums provide incremental spread over public equivalents. Private credit asset classes also tend to exhibit lower correlations with public investment grade (IG) credit, therefore enhancing diversification within fixed income.

For reserve-backing portfolios, this could mean more resilient income streams. Put simply, private credit can help enable insurers not only to enhance yield, but also to potentially improve risk-adjusted outcomes for their portfolios.

Figures 1, 2 & 3⁵:

Diversifying private markets beyond fixed income

Many insurers’ surplus portfolios have long relied on equity beta as a driver of surplus growth. This can take the form of either public or private equity, depending on the liquidity profile of the insurer.

In the US, life insurers have concentrated exposures in private equity given the long duration nature of their liabilities. Property & casualty insurers on the other hand have historically favoured public equities given shorter duration policies and an emphasis on liquidity.

These asset classes are highly correlated and given current valuation levels and forward-looking growth considerations by many insurance CIOs, we observe a renewed focus on diversifying risk exposures within surplus allocations, especially those asset classes that derive a healthy return from consistent and predictable cash flow contribution.

Real asset strategies such as real estate or infrastructure can help to diversify equity beta with lower stand-alone volatility and a potentially higher contribution of return from income.  These are all attractive attributes to insurance CIOs, with the added benefit of being potentially capital efficient.

Under most capital regimes, real estate has been recognised to express a lower risk profile than equities and therefore tends to incur a lower capital charge. This is true across the US, Europe and Asia.

Infrastructure on the other hand, while sometimes similarly recognised as having a lower risk profile, does not universally incur a lower capital charge. In the US and Hong Kong for example, the capital charge is equal to equity. This is something regulators are keeping an eye on for potential reform but as of today is unchanged.

Insurers are also increasingly leaning into niche strategies within these asset classes. Triple net lease (NNN), for example, can provide the complementary risk and capital benefits described of real estate but with a potentially higher return profile than core real estate and with similar predictable cash flows from long-term rents, net of expenses.

GP stakes is another asset class that continues to gain interest from Insurance CIOs given the strong historical performance of GPs and attractive diversification benefit from the breadth of GP platforms across asset class strategies. Importantly, GP stakes has historically delivered private equity-like returns and driven meaningfully from consistent cash flows from the underlying GPs.

As we noted earlier, the investment toolkit for insurance CIOs is expanding, with more opportunities than ever before to allocate intentionally across desired risk and return profiles given ALM and regulatory capital sensitivities.

Figure 4⁶:

Hong Kong shows promising signs for private markets

Regulatory capital frameworks play a decisive role in determining which private assets gain traction.

US risk-based capital rules historically applied “equal risk for equal rating” – treating structured securities and bonds similarly. Insurers have been able to optimise return on capital by allocating capital to highly rated tranches of securitised assets that offer attractive spreads.

This feature of US insurance capital has been a significant driver of private credit growth. For direct lending, this has been driven through the broad-based inclusion of rated feeder notes and middle market CLOs. For asset-based finance, the rapid adoption by US insurers has been facilitated by the capital efficiency of whole loan securitisations.

Figure 5⁷:

In Hong Kong, there is similar opportunity to optimise securitised assets for capital efficient tranche exposure given an equivalent credit spread risk charge to corporate bonds by rating under HK RBC. This has the benefit of being expressed through several return enhancing and risk diversifying asset classes, including CLOs, ABS, MBS, CMBS and structured alternatives.

Within asset-based finance, insurers can efficiently access the asset class through whole loan securitisations which can offer a high degree of capital efficiency by optimising the capital structure for risk-based capital.

Furthermore, unrated fixed income, specifically direct lending, presents a potentially attractive return on capital opportunity for Hong Kong insurers, similar to European Solvency II as the capital equivalent for unrated can be between a BBB and BB rating equivalent (depending on spread duration).

Hong Kong insurers may uniquely pursue structured private credit and unrated fixed income while maintaining capital efficiency – a rare combination globally with a wide opportunity set.

Finally, Hong Kong insurers may be able to benefit from the matching adjustment (MA) feature in HK RBC which allows for insurers to optimise their MA portfolios by including private debt. This can potentially lead to lower volatility of solvency capital and higher solvency capital ratios.

As a result, Hong Kong insurers might focus on the incorporation of privates across the following:

• Core IG replacement / completion strategies – IG corporate private placements, asset-based finance and whole loan securitisations, and structured alternatives are increasingly considered substitutes for public corporates or public securitised assets. These private exposures often provide attractive spread enhancement, customisable cash-flow and collateral profiles and favourable capital treatment.
   
• Capital-efficient yield strategies – middle-market direct lending and unrated fixed income can offer a compelling return on capital under Hong Kong’s RBC rules. A focus on senior lending has historically provided a lower risk profile than public markets.
   
• Diversified surplus strategies – in some instances, real estate equity, infrastructure and GP stakes are being introduced alongside or in place of traditional private/public equity. Real estate equity, in particular, typically benefits from comparatively efficient capital treatment, supporting more stable surplus returns.

A roadmap for Asian insurers

There seems to be no slowing in the trend of embedding private markets within insurance portfolios as structural components rather than opportunistic trades.

As Asian frameworks mature, the experiences of US and European insurers suggest the shift is not simply about enhancing returns but rather replacing traditional exposures with assets that are able to diversify and/or help mitigate risk, while matching liabilities with capital efficiency. With this in mind, insurers that integrate privates earlier on may help to improve portfolio efficiency while potentially enhancing returns over the long-term.

Privates, in this context, are no longer an alternative allocation. They have become core to many modern insurance portfolios.

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_{Sources
1 - Sources: S&P Capital IQ Pro, US Statutory Financials, Moodys
2 - See footnote 1
3 - See footnote 1
4 - See footnote 1
5 - Sources: Cliffwater Senior Direct Lending Index, Bloomberg US HY Index, Morningstar LSTA Leveraged Loan Index
6 - Blue Owl correlations calculated from historical index proxy returns from 2016 to 2025
7 - Hong Kong RBC Market risk factors for IG Bond, ABS, HY Bonds, and Direct Lending are applied using the Credit Risk Factor only and are calculated by applying the prescribed HK RBC shocks to index proxy spread durations as of February 2026}

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