German insurers are expected to increase their investment in private credit as they seek higher returns, diversify portfolios and match assets with long-term policyholder liabilities, according to Moody’s Ratings, the international credit rating agency.
In a new report, the agency explained that it expects these investments to create additional challenges around asset valuation, liquidity and risk management, potentially prompting greater regulatory scrutiny.
However, the agency does not anticipate a material weakening of German insurers’ credit profiles, citing their established investment strategies, generally stable liabilities, strong asset-liability management and robust capital positions.
German insurers have steadily increased their exposure to illiquid investments over the past decade, partly in response to the low interest rate environment that ended in 2022. According to Moody’s, these assets can offer additional returns, portfolio diversification and predictable cash flows that help insurers meet long-term financial commitments.
Based on data from the European Insurance and Occupational Pensions Authority (EIOPA), Moody’s estimates that illiquid assets accounted for 19.4% of German insurers’ invested assets in 2025, compared with 15.8% in 2019. Among life insurers, the proportion increased from 19% to 25.1%, reflecting demand for investments capable of supporting savings products with guaranteed returns.
Mortgages and loans remain the largest category of illiquid investments, although allocations to private equity, infrastructure and alternative funds have grown. These fund-based investments represented around 15% of German insurers’ illiquid assets in 2025, up from 5% in 2019. Moody’s cautions that the available figures may understate overall exposure because some private debt investments are recorded within broader corporate bond categories.
Private credit accounted for approximately 9.3% of German insurers’ total invested assets at the end of 2024, exceeding the European insurance sector average of 7.5%, according to Moody’s Ratings. Germany, France and the Netherlands together represented around 72% of European insurers’ combined private credit exposure, with Germany accounting for roughly half of that total.
The agency says German insurers’ exposure is concentrated in established investment categories, particularly mortgages, loans and privately placed corporate debt. Mortgages and loans, including holdings through funds, accounted for around 71% of private credit investments, supported by their predictable cash flows and suitability for matching long-term liabilities.
Unlisted or untraded corporate bonds represented a further 21% of German insurers’ private credit portfolios. These holdings totalled €92 billion at the end of 2024, equivalent to approximately 60% of the wider European insurance industry’s exposure to the same category.
Moody’s attributes Germany’s comparatively high allocation partly to the longstanding use of private placement instruments, including Schuldscheindarlehen (SSD), or promissory notes, and Namensschuldverschreibungen (NSV), registered debt instruments issued to named investors. These instruments offer insurers opportunities to diversify credit exposure and improve returns, although they generally have limited secondary-market liquidity.
The agency considers these established investments less risky than newer private credit strategies, such as middle-market lending, asset-based finance and more complex structured investments. It also notes that Solvency II capital requirements encourage insurers to consider credit quality and investment duration when selecting assets.
Moody’s expects growth in German insurers’ overall allocation to illiquid assets to moderate in the near term as higher interest rates improve the relative attractiveness of publicly traded fixed-income investments. The German 10-year government bond yield reached approximately 3.5% at the beginning of October 2026, its highest level in a decade, according to the agency.
Higher borrowing costs have also affected property valuations and private equity returns. Weak economic growth in Germany has weighed on property transactions, while limited private equity exit activity has delayed distributions to investors and increased liquidity considerations. Some insurers have responded by limiting new commitments or reducing target allocations in certain asset classes.
Nevertheless, Moody’s expects private credit exposure to continue growing, potentially at a faster rate than insurers’ overall illiquid asset holdings. Growth in traditional life insurance business remains subdued, limiting the scope for insurers to expand their investment portfolios overall. Moody’s therefore expects portfolio reallocation, rather than substantial growth in total invested assets, to be an important driver of increased private credit exposure.
Germany’s financing requirements could provide further opportunities for insurers to invest in infrastructure, defence, the energy transition and digitalisation. Moody’s expects private capital to play a growing role alongside public funding, with changes to the EU’s Solvency II capital framework due to take effect in 2027 potentially supporting greater investment in securitised assets.
The agency also expects German insurers to gradually broaden their private credit portfolios to include direct corporate lending, infrastructure debt and asset-based finance. Moody’s warns that increasing private credit exposure brings additional challenges because assets with limited secondary-market activity can be difficult to sell quickly during periods of financial stress. Valuations may also rely on models, external appraisals and investment manager estimates rather than observable market prices.
The agency cautions that comparatively stable reported valuations do not necessarily indicate lower underlying economic risk, as infrequent transactions can delay the recognition of changes in asset values. German accounting rules also allow many long-term debt investments to be carried at nominal value, acquisition cost or a figure similar to amortised cost, depending on the asset and its classification.
Despite these risks, Moody’s considers the likelihood of forced asset sales by German life insurers to be relatively low. Many traditional savings policies discourage early surrender, while long-term liabilities and established asset-liability management practices can help insurers retain illiquid investments during periods of market volatility.
The agency says larger German insurers generally have established capabilities in credit analysis, investment selection and risk management. However, smaller insurers and companies adopting more specialised strategies may rely more heavily on external managers, increasing the importance of manager selection, internal expertise and effective oversight.
Regulatory attention is also increasing. German financial regulator BaFin is examining risks associated with private credit, including limited transparency, interconnectedness and the demands placed on investment risk management.
Moody’s does not expect the expansion of private credit to materially weaken German insurers’ credit profiles. The agency cites their concentration in established assets with generally strong credit characteristics, long-term liabilities, effective asset-liability management and robust capitalisation as important mitigating factors. German life insurers recorded an average Solvency II coverage ratio of 374% at the end of 2025, according to Moody’s Ratings.
