You know that Your Survival Guy is worried about private equity and credit being dumped on the “little guy” in his or her 401(k). You don’t want to be the dumping ground for institutional investors’ bad bets. That’s what I’ve been explaining in my series, Private Equity Is the Next Big Thing Coming for YOU. But Americans who bought insurance products that rely on private credit may already be facing the industry’s risks.

Even the Treasury Department is concerned about insurers who loaded up on private credit in their portfolios, and what that means for their customers. In The Wall Street Journal, Heather Gillers reports:

The Treasury Department wants to talk to state insurance commissioners about the private loans piling up in insurers’ portfolios. Those state regulators have been keeping some of their thoughts to themselves.

The National Association of Insurance Commissioners, the organization for regulators from every U.S. state, in 2024 published a bombshell study revealing that the ratings on insurers’ private-credit investments were routinely inflated. Last May the group pulled the report from its website and said it needed to “clarify its findings.”

S&P Global’s Tim Zawacki is also worried about the ratings, writing of US life insurer investment data through September 30, 2025:

• Estimated fair value of private letter rated bonds increased to more than $408 billion as of Sept. 30, 2025, from nearly $366 billion as of Dec. 31, 2024.
• Despite the significant increase on an absolute basis, the share of private letter rated bonds to total bonds at estimated fair value declined to approximately 11.6% as of Sept. 30, 2025, from 12.1% as of Dec. 31, 2024. Private letter rated bonds constituted 11.6% of the aggregate carrying value of bonds held by US life insurers as of year-end 2024.
• While this analysis is focused on industry-level trends, it is important to note that the concentration in private letter rated bonds by the vast majority of US life insurers is either zero or well below industry benchmarks. Many small life insurers and fraternal benefit societies hold minimal, if any, private letter rated bonds. Exposure among managed care-focused companies with large life subsidiaries also was relatively minimal or nonexistent.
• Private letter rated investments accounted for 9.7% of all bonds acquired in the third quarter by US life insurers, or nearly $30 billion in the aggregate at actual cost. Of those, 94.7% had NAIC designations and modifiers equivalent to an S&P equivalent investment-grade rating of BBB- or higher.

Startlingly, Gillers from the WSJ explains later that private credit has wormed its way deep into the annuity market, now representing 1/6th of its investments. About 40% of that private credit is covered by private letter grades available only to the issuer and the investor.

Action Line: Private credit has worked its way deep into many areas of the financial world. If you are exposed to it, please do your due diligence and be sure you know what you’re getting into. When you want to talk about building a diversified portfolio of stocks and bonds, email me at ejsmith@yoursurvivalguy.com.

Originally posted on Your Survival Guy.