Designing multi-strategy credit solutions for insurers

As insurers continue to evolve their investment portfolios, multi-strategy credit has become an increasingly important tool for generating resilient income, enhancing diversification* and supporting long‑term balance‑sheet objectives.

Accessing private credit as part of such a strategy – likely a segregated mandate or pooled ‘fund of one’ – is not simply about adding yield. Utilising private credit – in particular, investment grade (with select ‘crossover’) private credit across the four key asset classes (corporate, infrastructure, real estate and alternatives) – can add real value where clients require carefully constructed solutions tailored to regulatory, accounting and liability considerations, while remaining operationally robust.

Know your client

In our view, a truly effective insurer‑focused credit solution starts with a deep understanding of client objectives. This means engaging early to clarify portfolio ambitions and thresholds, whether that be cashflow profile, credit quality, liquidity or wider strategic priorities. Insurers’ balance sheets are shaped by capital constraints and regulatory scrutiny, while often varying in terms of liability profile. Any solution, therefore, must be designed with these realities at its core. In our view, a one‑size‑fits‑all approach is unlikely to deliver optimal outcomes.

Ratings and return objectives may typically be among the first considerations. Insurers often seek income streams that are as predictable as possible with clearly defined risk profiles. Understanding these needs is essential, not only for investment discipline, but also to ensure portfolios can withstand regulatory scrutiny and support capital‑efficient performance. This is where the strength of investment grade credit comes to the fore.

Cashflow profile and liquidity management are equally critical. While private credit is deemed to be inherently less liquid than public markets, there is in fact liquidity for a significant portion of the private credit universe – as we’ve previously noted in other blogs. On the other hand, the converse can be true of certain types of public bond issuance. Insurers typically require portfolios that can be crafted to match liability profiles while incorporating defined liquidity features. This is an area of unappreciated advantage of the private debt space.

By utilising the core private debt asset classes, managers may be able to achieve such aims. Different asset classes may be used not just to diversify credit risk but to create those bespoke profiles; for example, short-dated investment (<1 year in areas like fund financing) can hugely benefit liquidity ladders, with real estate (typically 3-10-year and asset backed) creating a robust short-to-medium term cashflow, and both infrastructure and corporate providing medium-to-long term cashflows built through a series of bullet or amortising repayment profiles.

Thoughtful portfolio construction may be able to help balance the need for long‑term income generation with the practical demands of liability management. Importantly, these types of assets are fully complimentary to public bond and other investment types that will comprise overarching insurance solutions.

Moving to multi-strat

By combining exposures across investment‑grade and selectively chosen sub‑investment‑grade assets, and allocating across different private credit sub‑sectors, insurers may be able to enhance diversification and optimise capital efficiency. This flexibility allows portfolios to be calibrated to specific solvency, credit quality and duration targets, rather than forcing trade‑offs between return and balance‑sheet resilience. It should be remembered that the investment-grade private credit markets have been around for decades, demonstrating resilience and growth through cycles – the ability to ‘take a foot off the gas’ with respect to investment in overheated markets and access those showing better risk-return characteristics, is one of the most powerful tools in a portfolio manager’s toolkit.

Capital efficiency is another central consideration. Insurers are acutely focused on enhancing return on capital metrics under various regulatory regimes such as Solvency UK. Portfolio structuring and asset selection can play a role in determining regulatory capital requirements and financial statement impact. An integrated approach that considers investment return alongside solvency and accounting treatment may, therefore, be able to improve the attractiveness of private credit allocations for insurers.

Governance and transparency underpin portfolio design choices. Insurers need to evidence compliance across multiple regulatory and internal frameworks, making granular reporting and oversight essential. This includes clear visibility on sustainability characteristics, solvency impacts, risk analytics and portfolio construction. Strong governance frameworks not only support regulatory requirements; they can also build confidence in the long‑term suitability of the investment solution.

We also believe operational simplicity is often an overlooked, yet vital, element. Managing multiple private market exposures can be demanding for internal teams. A consolidated framework that integrates portfolio design and construction, origination, structuring, valuation, asset management, portfolio management and reporting within a single governance model can materially reduce complexity and allow for more efficient active management of a portfolio if necessary. And, this can be undertaken not just across privates or publics, but across both. Additionally, currency and interest-rate risks may be able to be hedged via an integrated mandate holding a central liquidity pool. This ‘one‑stop‑shop’ approach has the potential to provide insurers with a unified client experience while ensuring consistent oversight and risk management across the portfolio.

Ultimately, we believe well‑designed multi‑strategy private credit solutions demonstrate how insurers can access diversified, capital‑efficient exposure that has the potential to align closely with their balance‑sheet needs. By integrating investment expertise, regulatory alignment, sustainability considerations and operational efficiency, such solutions offer a blueprint for how private credit can be engineered around the precise requirements of modern insurance portfolios.

 

*It should be noted that diversification is no guarantee against a loss in a declining market.