German insurers are likely to continue increasing their exposure to private credit as the country's investment needs call for large amounts of private capital, according to an analysis by Moody's reported by Alternative Credit Investor. The rating agency says higher yields, diversification and long-duration assets will keep supporting insurers' illiquid portfolio strategies.

Moody's estimates that German insurers' illiquid assets rose to 19.4% of portfolios in 2025, from 15.8% in 2019. Most of the increase came from life insurers seeking to meet guaranteed rates of return on savings products. Mortgages and loans account for the largest share of illiquid holdings, while exposure to infrastructure, private equity and alternative funds has grown the fastest.

Private credit accounted for around 9.3% of German insurers' total invested assets at the end of 2024, compared with a European average of 7.5%. Moody's says this is consistent with a broader trend among insurers in the US, UK and Europe.

The agency also flags that larger private credit books make valuation, liquidity and governance oversight more complex. German regulator BaFin has increased its scrutiny of insurers with significant private asset exposure, and Moody's expects the ability to manage complex portfolios to become a more important credit differentiator between insurers.

Moody's nonetheless sees German insurers' credit strength remaining steady, supported by generally stable liability profiles, strong asset-liability management and a focus on established private credit asset classes. It also expects insurers to help meet Germany's growing investment needs in infrastructure, defence and digitalisation.

For European direct lenders and infrastructure debt managers, the analysis points to German insurance balance sheets as a durable source of demand, particularly for long-dated, investment-grade-style credit that matches life liabilities. The trade-off is heavier supervisory attention: managers can expect German insurance LPs to ask more of valuation processes, reporting and liquidity terms as BaFin's focus on private assets increases.