Life Insurers are the emerging powerhouses in credit markets, Morgan Stanley says

In the recent times, 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 offering, regulatory frameworks, and the rise of alternative asset management,” Morgan Stanley’s Vishwanath Tirupattu said.

The post-pandemic macroeconomic environment has boosted the life insurer’s transformation, while higher interest rates have altered their product range, with a wide range of fixed annuity products, Morgan Stanley said.

The rise in interest rates by the Federal Reserve from near-zero levels to over 5% between 2022 and 2024 also helped life insurers, who could now offer significantly higher crediting rates on fixed annuities. This makes them attractive to retirees and the cohort approaching retirement and seeking tax-deferred growth and predictable retirement income.

“We think that these flows could persist given demographic trends,” Tirupattu said.

“According to LIMRA, total U.S. annuity sales hit $434 billion in 2024, a 13% increase from the prior year. It is important to note that unlike variable annuities, this range of fixed annuity products contributes to general account flows, meaning that 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,” Tirupattu added.

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, and this growth has outpaced the expansion of traditional credit markets, Morgan Stanley said.

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.

“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,” Tirupattu said.

Fueling this evolution is the rise of private equity ownership and outsourced asset management. PE-backed insurers, in particular, have aggressively expanded into higher-yielding private placements. While rate volatility could affect future annuity flows, life insurers are now key intermediaries in credit markets—reshaping capital flows, risk pricing, and financial intermediation.

Here are companies related to life insurance: MetLife (NYSE:MET), Prudential Financial (NYSE:PRU), Lincoln National (NYSE:LNC), Principal Financial (NASDAQ:PFG), Globe Life (NYSE:GL), Aflac (NYSE:AFL), American Equity Investment Life (AEL), Apollo Global Management (NYSE:APO), KKR (NYSE:KKR), Carlyle Group (NASDAQ:CG), Blackstone (NYSE:BX), Ares Management (NYSE:ARES), BlackRock (NYSE:BLK).

Here are some financial ETFs: (NYSEARCA:XLF), (NYSEARCA:VFH), (NYSEARCA:IYF), (NYSEARCA:FNCL), (NYSEARCA:IYG), and (FXO).