U.S. annuity gross sales ought to be sturdy in 2024, and the issuers will in all probability make investments a big share of the premiums in personal credit score preparations, in response to Jamie Tucker, a senior director at Fitch Rankings.
“We anticipate allocation to personal credit score to proceed to extend, partially pushed by financial institution lending retrenchment,” Tucker stated Friday throughout a Fitch briefing on its credit score outlook for the North American life sector.
What it means: Extra of the belongings inside shoppers’ annuities could also be tied to swimming pools of automobile loans, bank card accounts and small-business loans, and fewer to the notes and bonds that present financing for large, well-known firms, partly as a result of banks are going through turbulence.
Non-public credit score: The personal credit score market handles financing supplied by way of mechanisms aside from financial institution loans and publicly traded bonds.
The scale of the U.S. personal credit score credit score market elevated to $2.3 trillion at first of 2023, from $875 billion in 2020, in response to Morgan Stanley.
State insurance coverage capital counting guidelines strongly encourage U.S.-based life and annuity issuers to put money into high-grade company bonds, however plummeting bond yields pushed insurers to bump up allocations to different belongings after the 2007-2009 Nice Recession.
Non-public fairness corporations have acquired some life and annuity issuers and related with others by way of massive reinsurance preparations. These corporations have promoted elevated insurer use of personal credit score and different belongings that pay comparatively excessive charges as a result of they’re harder to promote than publicly traded shares or publicly traded bonds.