FSB flags insurance capital as part of the private-credit ecosystem

The Financial Stability Board has placed insurers inside its map of private-credit vulnerabilities, in a report warning that the market has not been tested in a severe downturn.

Its Report on Vulnerabilities in Private Credit puts the market's total size at between $1.5tn and $2tn, after significant growth across jurisdictions. The ecosystem it describes takes in asset managers, insurers, pension funds and banks, with asset managers acting as general partners.

Among the potential vulnerabilities the report sets out are interconnectedness with insurers and private equity firms, cross-border interlinkages, leverage, liquidity mismatches and concentration. High leverage and concentration in specific sectors may amplify stress, the FSB said, and signs of underlying stress are already emerging across private credit. At its current size and scope the market has not been through a severe economic downturn, which could expose vulnerabilities in leverage and in borrower credit quality.