Private equity and debt funds are big investors in data centers that power AI chatbots. A bust in the AI boom would surely add to pressures mounting from the slow-moving p.e. default wave. And as the knee bone is connected to the thigh bone, so life insurers are fused to private funds (both as investors in them and as financiers of them). Annuitants and policy holders may soon be reminded of these facts of life and high finance.
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As it is, U.S. life insurers have committed roughly one-third of their assets to private credit. And owing to widespread private equity ownership, life insurers are themselves highly leveraged, with 22 out of the top 80 carriers by asset size reporting liability-to-surplus ratios of over 30 times as of year-end 2024.
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Another thing: American life insurance held $1.3 trillion in notional exposure to interest rate derivatives at year-end 2024. "As fixed-rate receivers," the BIS reminds its readers, "insurers typically face margin calls in periods of rising rates."
And another: Many annuitants have the right to redeem early, with surrender penalties of 10% or less. Annuity holders are most likely to accept that penalty when they can get higher rates of return elsewhere, that is, when rates are rising.
~ "Tomorrow's news today," Grant's Interest Rate Observer, December 5, 2025
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