Bank of America analysts have taken a closer look at how much European insurers have invested in private assets after a wave of share price pressure in the sector. Their review finds that direct exposure to private credit and private equity sits at measurable levels, but that the composition and quality of those holdings reduce the level of risk implied by recent market sentiment.
Insurer stocks across Europe have weakened in recent weeks. Market unease has centered on asset quality and possible private credit exposure following a number of high-profile bankruptcies, looming refinancing needs and investor concerns about technology-driven obsolescence. Additional headwinds for the sector cited by the bank include a softer pricing backdrop in property and casualty insurance and geopolitical tensions in the Middle East.
Portfolio composition and regional patterns
On average, European insurers allocate about 11% of their general account investments to private credit and private equity, according to the bank's analysis. When the bank broadens the definition to capture all private assets - including mortgages, loans, securitized products, private lending, private equity and direct real estate - the average allocation rises to 27%.
The analysts emphasize that mortgage portfolios are typically high quality and that direct real estate positions are diversified. Excluding mortgages and direct property holdings, the breakdown becomes roughly 7% in private lending and 4% in private equity across the sector.
There are notable regional and business-model differences. UK life insurers show the highest combined exposure to private lending and equity, in a range of 15% to 25%. Dutch life insurers appear more defensive, with most private allocations concentrated in high-quality Dutch residential mortgages. Aegon screens as a high reader of exposure because of its US focus, but the bank says its portfolio is nevertheless more conservative than direct US peers.
Among large composite insurers, AXA records slightly higher exposure versus peers partly because of a more conservative stance toward securitized assets. Generali and Zurich look better positioned than the sector average. Property and casualty insurers generally report lower private asset shares because of shorter balance sheet durations, though Munich Re and Hannover Re sit modestly above the average for the subgroup.
Sectors and types of holdings
Across both debt and equity holdings, software and information technology represent only a small share of private investments. The bulk of private allocations are concentrated in infrastructure and energy, with government-sponsored projects forming a meaningful component of UK holdings.
Stress testing potential losses
To gauge downside, Bank of America applied a simple stress test that assumes default rates of 5% on infrastructure debt and 10% on other private credit and private equity - roughly double observed levels. Under those assumptions, losses would equal about 4% of the sector's market capitalization if shareholders were required to absorb all losses. The bank notes that in practice some losses would be shared with policyholders, which would reduce the drag on shareholder value.
Overall, the bank's review suggests that while private-asset exposure warrants monitoring, the direct risk to shareholder capital across the European insurance sector may be less severe than recent price action has implied.