(Bloomberg) --Private credit and insurers are expected to get even closer this year, potentially prompting regulators to inspect ties between the two and any associated risk, according to a Moody's Ratings report.
The ratings firm expects to see more insurers flock to private credit investments, as they continue to search for yield, particularly through asset-based finance opportunities, according to the Tuesday report. Areas of interest include consumer finance, commercial finance, hard assets and financial assets.
Private credit funds are also anticipated to look to more retail investor opportunities, according to Moody's, which would draw regulator attention. The volume of managed retail private debt assets is growing at a faster pace than institutional fundraising, Moody's wrote in its report.
"There will be greater scrutiny of areas exposing consumers and of insurers' private debt investments," according to the report, though "regulatory pressures will ease in the US private credit market during the second Trump administration."
Regulators, like the National Association of Insurance Commissioners, have approved initiatives that would allow them to challenge credit ratings given to private debt investments, if they believe that the rating does not accurately measure risk.
Risks like "lack of transparency" and "large exposure to single-name assets" bear keeping an eye on as insurance continues to partner with alternative assets through partnerships and investments, according to the report.
As private credit grows, which Moody's anticipates reaching $3 trillion in assets under management by 2028 globally, many are focused on how the asset class will handle stress.
"A turn in the economic environment would likely test the resilience of the private credit market and its growth aspirations," the report said.
