Why Private Capital’s Insurance Addiction Is Starting to Crack

Quick Answer: Life insurance has become the engine powering private capital’s expansion into credit markets. Firms like Apollo, Blackstone, and KKR use policyholder premiums to fund lending operations, profiting from the spread between what they earn on investments and what they owe policyholders. But as newcomers pay increasingly aggressive prices to enter the market — exemplified by Aquarian Capital’s $4.1 billion acquisition of Brighthouse Financial — regulators and industry veterans are warning that the model’s risks are growing faster than its safeguards.

The trade that built modern private capital is deceptively simple. Buy a life insurer. Take control of the investment portfolio backing its policyholder obligations. Redirect that capital into higher-yielding private credit — direct loans, structured finance, asset-backed securities — and pocket the difference between what the investments return and what the insurance liabilities cost. The policyholder gets their annuity or pension payment. The asset manager keeps the spread.

Apollo Global Management pioneered this model when it merged with its insurance arm Athene in 2022, creating what has since become the template for an entire industry. Athene provides Apollo with permanent capital — roughly $300 billion in assets that do not need to be fundraised, do not face redemption windows, and do not depend on investor sentiment. Instead, they flow in steadily as Americans buy annuities, roll over pensions, and plan for retirement. Apollo’s asset management division then deploys that capital into the private credit opportunities it originates, creating a closed loop: insurance funds lending, lending generates returns, returns service insurance obligations, and the spread is profit.

The model has been extraordinarily successful. Apollo’s assets under management have grown to nearly $1 trillion. Its retirement services division, powered by Athene, accounted for a significant share of the firm’s earnings in 2025. Competitors noticed. Blackstone acquired a majority stake in Everlake (formerly Allstate Life Insurance) and built its own insurance-backed lending platform. KKR acquired Global Atlantic for $12 billion. Brookfield took over American National Insurance. Ares, Carlyle, and a growing list of mid-tier firms followed, each seeking the same prize: a captive pool of long-duration capital that could be invested in illiquid, higher-yielding assets without the constraints of traditional fund structures.

Life insurance has become, in effect, the lifeblood of the private capital industry — the source of cheap, stable funding that makes the economics of private credit work at scale.

The Aquarian Question

The Brighthouse Financial deal crystallised the anxiety that has been building across the industry for months. Aquarian Capital, a New York-based holding company backed by Abu Dhabi’s Mubadala sovereign wealth fund and RedBird Capital Partners, agreed in November 2025 to acquire Brighthouse for $4.1 billion — roughly $70 per share in an all-cash transaction. Brighthouse, spun off from MetLife in 2017, carries more than $230 billion in promises to policyholders and other liabilities. It had reported net losses, struggled with stagnating annuity sales, and was widely considered a complex and troubled asset.

Apollo and Carlyle had both examined the deal and walked away. Other asset managers who independently valued Brighthouse came up with figures roughly half what Aquarian paid. One senior executive who reviewed Aquarian’s investor presentation described the reaction as unanimous horror. Aquarian’s thesis was essentially to take the Apollo playbook and accelerate it — use Brighthouse’s enormous liability base to fuel a lending and investment operation, profiting from the spread at a scale that justified the premium.

Brighthouse shareholders approved the merger in February 2026. Regulatory approvals are pending. The deal is expected to close later this year.

The concern is not that the model itself is flawed. Apollo has operated it profitably for years, with $34 billion in regulatory capital at Athene and a track record of matching assets to liabilities. The concern is what happens when the model is replicated by firms with less experience, thinner capital buffers, and greater appetite for risk — firms arriving late to the insurance-backed credit trade and paying increasingly aggressive prices to get in.

The Systemic Question

The Bank for International Settlements published research estimating that publicly traded North American life insurers would face a capital shortfall of approximately $150 billion if their portfolios were marked to market under stress conditions. The finding underscored a structural issue: private credit assets held by insurers are inherently harder to value, less liquid, and more opaque than the government bonds and investment-grade corporate debt that life insurers traditionally held.

Regulators have responded, though slowly. The National Association of Insurance Commissioners introduced new rules in 2026 increasing capital charges for certain categories of private credit held by affiliated insurers. State regulators in New York and Virginia have raised concerns about the more permissive capital treatment offered by Iowa, where several private equity-affiliated insurers are domiciled. And the question of related-party investments — where insurers invest in assets originated by their own parent companies — remains deeply contentious. Athene holds roughly 12% to 18% of its assets in related-party investments, depending on how the calculation is performed. Some competitors hold significantly more: KKR’s Global Atlantic at 22%, Brookfield’s American National at 30%, Blackstone’s Everlake at 35%.

UBS chairman Colm Kelleher has publicly warned of a looming systemic risk in the insurance sector. Apollo CEO Marc Rowan dismissed the claim, arguing that most private credit held by insurers is investment grade and that the hysteria around the asset class is disconnected from the substance. Both men are talking their book. The truth is likely somewhere between them — and the answer depends entirely on what the next credit cycle looks like.

The Stress Test

The insurance-backed credit model does not have a built-in expiry date, but it has a vulnerability that functions like one: if credit losses spike, if interest rates move sharply, or if regulators tighten capital requirements beyond what current portfolios can absorb, the spread that makes the entire model profitable could compress or vanish. And unlike a hedge fund, an insurer cannot simply gate redemptions. It has obligations to policyholders — contractual, regulated, and in many cases guaranteed by state insurance funds.

The executives watching Aquarian’s Brighthouse deal are not worried because one firm overpaid for one insurer. They are worried because the pattern — latecomers paying premium prices for complex insurance liabilities, planning to invest aggressively to cover the cost — is the kind of behaviour that historically precedes a correction.

The private capital industry has built an extraordinary machine. Insurance provides the fuel. Private credit provides the engine. The spread provides the profit. But machines built for calm conditions are tested by turbulence. And the people closest to this one are starting to say, quietly but clearly, that they are nervous — and that they are right to be.

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