Private assets in the insurance sector

June 2025

The insurance sector has seen a significant shift toward investing in private assets. The potential for diversification and higher returns, alongside advances in analytics and the availability of specialised vehicles, have made private assets an attractive investment for many insurers. Life insurers in particular can be attracted to the long-term nature of these investments. Additionally, some private assets, such as real estate and infrastructure, exhibit a positive correlation with inflation, adding to the appeal.

However, investment in private assets comes with a host of regulatory challenges and risk management issues. Firms can expect increased supervisory attention on their asset portfolios, as regulators enhance their thinking and supervisory teams scrutinise both the micro- and macro-prudential risks associated with the growth of private assets. Ahead of the curve, insurers can revisit their analysis on potential sources of risk in their private asset investments and clearly evidence how they have been identified, measured and managed. Firms can also enhance the expertise of their valuation functions and strengthen governance arrangements. These and other actions explored below can not only help meet regulatory expectations but can also help strengthen insurers’ approaches to investment risk management while optimising their balance sheets.

This article explores the regulatory journey, key risk areas, and actions for insurers to consider as they navigate the complexities of private asset investments. It is part of a wider series on private assets from KPMG in the UK.

Now more than ever, life insurers in the UK may be particularly attracted to private assets. The PRA’s Solvency UK reforms allow life insurers to make use of the amended Matching Adjustment (MA) facility, providing improved capital treatment not only to assets with fixed cashflows but also to ‘highly predictable’ cashflows. With this expansion of the MA, and the recent proposals for a Matching Adjustment Investment Accelerator, some life insurers may be considering whether now is the right time to invest in private assets and add them to their MA portfolios.

In addition, over the last decade or so, there has been a substantial growth in asset-intensive reinsurance (AIR), including funded reinsurance (FundedRe). This growth has expanded capacity and increased the appetite for investment in private assets.

The regulatory landscape for private assets in the insurance sector has evolved over the years.

UK approach

The PRA has set expectations for insurers investing in illiquid and private assets. Supervisory statements (SS) such as SS3/17 on illiquid assets for use in the MA and SS1/20 on the prudent person principle (PPP) outline expectations on assessing sources of systemic and idiosyncratic risk and having robust valuation methodologies for non-traded assets. Additionally, as per SS7/18 on the Solvency II: Matching Adjustment, insurers are required to perform various risk assessments on the assets in their MA portfolio (MAP) and as part of their MA attestation. This becomes even more important if insurers expand their MAPs to include private assets.

Most recently, the PRA has focussed on the changing nature of life insurance business and outlined concerns around FundedRe. SS5/24 on FundedRe highlights the risks around private assets in these transactions, focusing on collateral policy and specific expectations on illiquid assets such as valuation methodology by asset class, MA eligibility conditions monitoring, SCR modelling of the assets, and investment management approaches. The PRA’s consultation CP10/25 on managing climate-related risks also outlines expectations on the valuation of private assets, noting in the draft SS that assumptions about climate-related risk should be reflected in valuations even where there is no active market for an identical asset.

Additionally, the Bank of England (BoE) has considered this issue from a financial stability perspective. The November 2024 Financial Stability Report highlighted vulnerabilities at the intersection of PE and life insurance sectors, particularly concerning the valuation opacity and illiquidity of private assets. It noted that the level of complexity and lack of transparency associated with these activities has ‘the potential to increase the fragility of parts of the global insurance sector and to pose systemic risks if underlying vulnerabilities are not addressed.’

The FCA has also expressed concern around the valuation of private assets. In March 2025, it outlined the need for improvement on valuation methodologies and frequency, conflicts of interest, and functional independence and expertise. While its report was specifically focussed on asset managers, many of the concerns can apply to insurers’ activities. More insights on the FCA’s findings can be found here.

Global

The IMF published a paper on PE and life insurers in 2023, highlighting how the growing involvement of PE has had consequent changes to asset allocation and investment strategies of life insurers. And in 2024 a BIS report stated that ‘life insurers' rising reliance on AIR (asset intensive reinsurance), increased exposure to private markets and growing interconnections with PE firms raise several concerns for financial stability and challenges for supervision.’

In March 2025 the International Association of Insurance Supervisors (IAIS) published a consultation paper on structural shifts in the life insurance sector, proposing definitions for alternative assets and outlining numerous concerns. The IAIS proposes that alternative assets are defined as those that ‘display a high degree of either valuation uncertainty, illiquidity or complexity, or a combination of these’.

This could potentially capture a wide range of assets, and insurers will be questioning whether their existing investment portfolios could fall under this definition. While the IAIS has not set out how it intends to apply the definition, the in-scope assets are likely to be subject to greater supervisory interest.

In Bermuda, where there is a significant reinsurance market, the Bermuda Monetary Authority (BMA) explicitly noted trends ‘where the life and annuity insurance sector has increased allocation to illiquid, hard-to-value assets’, and has committed to further strengthening the insurance group supervision regime in its 2025 Business Plan. The BMA has also recently consulted on the public disclosure of assets and liabilities for commercial long-term insurers, which are expected to apply from 31 December 2025. This focus on disclosure helps address concerns around transparency.

Common themes emerging from regulators and standard-setters are concerns around:

1. Valuation uncertainty: Private assets can typically have different valuation methods, frequencies and associated complexities. These assets often require subjective judgment and assumptions, leading to potential discrepancies between estimated values and actual market values. This uncertainty can impact investment decisions and financial reporting. Regulators and standard-setters have emphasised the need for robust valuation methodologies, as well as frequent valuations to mitigate these risks.
2. Liquidity risk: Private assets typically have lower liquidity compared to publicly-traded assets. Factors such as the time required to monetise an asset, market depth and the likelihood of forced-sale losses are relevant when considering liquidity risk. The lack of well-established secondary markets to convert private assets into cash can make it difficult for insurers to convert the assets into cash quickly without incurring substantial losses.
3. Conflicts of interest: The complexity of transactions involving PE and life insurers can lead to conflicts of interest and concentration risk, particularly when a PE firm owns both the life insurer and the corporate entity the insurer is invested in as part of a FundedRe transaction. Some factors that can heighten this conflict include: differing investment horizons, for example, where life insurers are primarily concerned with paying policyholders over a 10 – 20 year time horizon but the PE firm is managing returns to a shorter time horizon; different risk appetites, where PE firms may prioritise the optimisation of the Internal Rate of Return whereas life insurers must prioritise making promised annuity payments; and possible information asymmetry.
4. Governance and Oversight: Effective governance arrangements are crucial for managing private asset investments. The FCA has highlighted the need for improved accountability, detailed record-keeping, and independent oversight of the valuation process. Governance expectations can also apply where firms use third-party valuation advisors, as they will need to consider the limitations of such providers and manage any potential conflicts of interest.
5. Systemic and idiosyncratic risks: Regulators and standard-setters have stressed the importance of considering both systemic and idiosyncratic risks. Private assets can contribute to systemic risk if large-scale investments in these assets lead to market disruptions. Regulators will therefore want to gauge the size of private asset investment across the insurance sector, and also be able to compare firms’ treatment of these highly complex assets, including any capital benefit derived. There is precedent for adopting a more standardised approach to treatment of ‘unconventional’ assets, such as the PRA’s Effective Value Test (EVT) on equity release mortgages included in the MAP. While no such treatment is being proposed for private assets, insurers should note that regulators have historically been willing to take action to address these systemic risks. Idiosyncratic risk is also prevalent. The performance of private assets can be highly dependent on specific factors such as management quality and market conditions. Both types of risk need to be carefully managed to maintain both financial stability and an insurer’s own financial resilience.

Insurers could benefit from considering the following actions:

• Review asset portfolios and identify any assets that may be captured in the IAIS definition of ‘alternative assets’ or otherwise require an enhanced risk management approach to meet supervisory expectations.
• Identify risks affecting private assets and demonstrate how the potential sources of systemic and idiosyncratic risk have been considered, especially if those assets will be included in the MAP and will need to be considered in firms’ MA attestations.
• Review the appropriateness and robustness of the valuation methodology and consider triggers for ad-hoc asset valuation.
• Enhance the expertise and independence of the valuation function and, where using third-party advisors, consider the strengths and limitations of these services.
• Strengthen governance arrangements, such as accountability for and oversight of the valuation process. Ensure that valuation committee papers clearly articulate points of uncertainty, and minutes reflect points of challenge and discussion.
• Identify and mitigate conflicts of interests, particularly where private assets are used in FundedRe transactions.
• Maintain visibility on upcoming regulatory changes and consultations in all relevant jurisdictions and take tangible steps to plan accordingly.

For more information or to discuss this topic further, please get in touch.

You can read more in KPMG in the UK’s series of articles, where we explore wider regulatory trends and developments impacting the private assets industry.