A Closer Look: How Insurance CIOs See the World

Gary Zhu, CFA| Deputy Chief Investment Officer—Insurance; Global Head—Insurance Portfolio Management
Geoff Cornell, CFA| Chief Investment Officer—Insurance

Despite an aging credit cycle, private credit still plays a starring role.

Inflation. Demand for alternative assets. The promises and risks of artificial intelligence. Insurance investors with roughly $2 trillion in collective assets had plenty to say about these subjects at AB’s 2026 Global CIO Forum and about how they may influence investment strategy.

The insurance attendees were among a group of 130 chief investment officers and senior asset allocators who attended the event to discuss the key strategic issues they face. Geopolitics and Federal Reserve independence were also areas of concern among insurers, as were market concentration and valuation. Still, most participants were in a pro-risk state of mind, and the need for private assets was a major topic of discussion.

Here’s a brief recap of our sideline discussions with insurance CIOs who attended.

Private Assets Are Top of Mind

There was broad consensus in favor of adding exposure to private assets or at least maintaining current levels of exposure, particularly with US growth still solid and inflation above the Fed’s long-term target. To create capacity for private credit and its attractive return potential, many participants mentioned increasing liquidity in their public fixed-income portfolios through greater diversification.

Some investors expressed concern that markets appeared to be in the later stages of the credit cycle and said they were bracing for more varied performance. As one participant put it, “There isn’t a CEO out there who doesn’t want to get into higher-yielding private credit. But many worry about losses.”

Even so, most participants said they expected lower losses in isolated cases of stress or default because of the control that private lenders have in structuring protective covenants and their ability to work proactively with borrowers when they run into trouble.

Differentiation within private credit types is likely to be a key decision for investors in 2026. Direct middle-market lending remains a favored destination for many life insurers, but levels of risk tolerance and capital appetite varied. There was more interest among European life insurers to seek higher return potential in mezzanine or junior tranches of these deals. One participant said that US insurers’ losses on junior tranches of subprime mortgage loans in 2008 made them more squeamish.

For others, expansion into asset-based finance was a higher priority. The attractive risk-adjusted return potential of privately originated US non-agency residential mortgages, which typically come with robust underwriting standards and low risk-based capital requirements, was also an area of focus. Another draw: mortgage loans can be used as collateral to secure stable low-cost funding with the Federal Home Loan Bank.

There was also interest in picking up extra spread by taking senior positions in pools of commercial and consumer loans. This has become easier to do through strategic partnerships with asset managers that have differentiated origination capabilities and tailored asset-focused solutions.

Liability Structure Determines Strategy

Views varied by liability profile. Property and casualty insurers focused on the need for fixed-rate structured private placements with five- to seven-year maturities, given the extra spread they offer over public corporate bonds. A few insurers said they were warming to assets with longer maturities. But others said they preferred to take fixed-rate duration risk in US Treasuries and other public assets, coupling that with floating-rate asset-based finance.

Larger allocations to asset-based finance and infrastructure were also mentioned in the context of diversifying exposure to middle-market direct lending. Participants also saw value in private equity and private credit secondaries, which can often be acquired closer to maturity at a discount as life insurers let them roll off their balance sheets.

Insurers also showed interest in more esoteric  assets, including oil and gas securitizations and bonds backed by music royalties. Many participants said they intend to increase allocations to net asset value  loans, while others expressed concern that a push into private credit would tighten spreads—particularly in investment-grade private placements.

One contrarian participant reported being underweight private credit altogether and focusing on finding value and superior liquidity in public credit.

Risk Awareness: Still Elevated

Despite the interest in private assets, many insurers acknowledged that headline risk on the private side was a concern and has made day-to-day asset-allocation decisions more difficult. “There will be losses; they just haven’t materialized yet,” said one participant.

Politics and policy uncertainty in the US may also create complications, and most participants expected those difficulties to persist as markets brace for US midterm elections. Concerns about Fed independence were mentioned multiple times. A variety of participants  said they expected to see more headline risk tied to inflation and potentially higher interest rates.

“It’s difficult to make investment decisions when everything happening on the policy front appears designed for one purpose: to win midterm elections in November,” one insurer said. “That makes it hard to manage an allocation on such short-term issues. The rate volatility is hard to manage.”

Geopolitics and Artificial Intelligence

A handful of investors expressed concern about geopolitical issues, including the tendency of large powers—the US, China, Russia—to flex their muscles in pursuit of perceived national interest.

Artificial intelligence was mentioned often, too, though mostly with caution. Concerns centered around the vast amounts of debt being raised to finance data center construction and the substantial investment needed to maintain them. One participant drew parallels to the bursting of the dot-com bubble in the early 2000s, adding that investors should be “selective” about financing data center construction.

Participants generally agreed that manager selection remains a critical factor when it comes to private-market exposure broadly and private credit in particular, with some noting that performance persistence may be more durable in private markets than public ones.

The views expressed herein do not constitute research, investment advice or trade recommendations, do not necessarily represent the views of all AB portfolio-management teams and are subject to change over time.

Read More from Alliance Bernstein