Reassessing Value for Insurers Across Europe’s Credit Landscape
In recent years, European insurance companies have increasingly allocated to different forms of private credit, aiming to target higher returns, diversify credit exposures and benefit from excess liquidity.
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Key takeaways
- Private lenders eased lending conditions post-COVID and gained market share. Recently, banks have eased terms, expanding refinancing for syndicated loans and high yield bonds.
- Investment returns for public and private European credit are likely to converge, but publicly issued bonds have offered better liquidity, price transparency and lower costs.
- We see a compelling investment case here as an alternative or complement to European direct lending, offering insurers flexibility and risk-adjusted return potential.
Executive summary
European Credit: An Evolving Market for Insurers
The European credit market has seen significant evolution, with high yield bonds, leveraged loans and direct lending becoming established funding channels for borrowers and attractive investment options for investors. For insurance companies, which have increasingly allocated capital to private credit for higher returns and diversification, understanding the shifting dynamics between these public and private markets is crucial.
Historically, the choice between public and private credit has often been driven by interest rates. Post-COVID, private credit lenders gained market share as banks grew more cautious. However, this trend is now shifting. With lower funding costs, banks are competing more aggressively, causing a resurgence in syndicated loan and high yield bond issuance, which have offered borrowers more favourable pricing.
For insurers, the regulatory treatment of private debt has often been favourable from a Solvency Capital Requirement perspective compared with public market equivalents. However, the illiquidity and reduced price transparency of private credit are significant considerations. Whilst direct lending may offer higher yields to compensate for these risks, the premium has been narrowing.
Recent data shows that returns between public and private European credit are converging. In 2024, European high yield bonds and leveraged loans outperformed private credit for the second consecutive year. This is partly due to increased competition in the private space and the fact that direct lending borrowers are often smaller and more exposed to economic volatility. Default and recovery rates across both public and private markets have remained comparable.
Looking forward, the lines between public and private credit may continue to blur. Borrowers are increasingly using multiple financing channels, and investors have even allocated direct lending "dry powder" to syndicated loans to capture temporary pricing advantages.
For insurers, this environment presents an opportunity to re-evaluate portfolios. European leveraged loans and high yield bonds offer a compelling investment case, historically providing liquidity, transparent pricing and access to a broad issuer base. Investors may see these instruments as a strong alternative or complement to direct lending, offering flexibility and attractive risk-adjusted return potential in a well-balanced credit portfolio. As the markets continue to integrate, a strategic approach that leverages the strengths of both public and private credit will be key.
This material is provided for informational purposes only and is intended for professional/institutional investor and qualified client use only. Not for retail public use.
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