German insurers less enthusiastic about private credit, BaFin says

Written by Adam Cadle

15/05/2024

German insurers are becoming less enthusiastic about private credit as rising interest rates make asset classes with higher liquidity more attractive, according to the country’s top financial regulator.

“I see the investment volume stagnating,” said Julia Wiens, who leads insurance supervision at BaFin. “Firms made these investments more boldly in the low-interest rate environment, but there are now other options that you can invest in with less know-how and much less risk.

“One can’t forget that the issue of liquidity is still an issue for the industry and that these investments are by nature difficult to liquidate and that doesn’t really fit with the business of an insurer. I see this staying more of an addition in the asset allocation, but I don’t see big growth.”

Private equity made up 5.2% of German insurers’ investments in mid-2022 while private credit accounted for 4.1%, up from a combined 4.7% at the end of 2019, according to findings of a BaFin survey published last year. Private debt accounted for as much as 30% of investments at some insurers in 2019, the regulator said.

“The situation is very heterogeneous at the firms,” said Wiens. “If you have a big firm, they have the know-how in-house and the investments can be made and are made with a high level of knowledge. In small firms, that’s generally not the case and it’s just individual people who are responsible.”

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