UK life insurers are assessing a broader range of private credit and securitised assets as they seek to match long-term liabilities, manage capital requirements and diversify their investment portfolios. Changes to the UK insurance regulatory framework and the growth of the pension risk transfer market are influencing how insurers and asset managers approach these investments.
The transfer of defined benefit pension liabilities to insurers creates demand for assets capable of supporting long-term annuity payments. Insurers must hold suitable investments against these obligations, with predictable cash flows and appropriate credit characteristics forming important considerations when constructing portfolios.
Private credit is already an established component of UK insurers’ matching adjustment portfolios, although existing allocations have largely focused on secured lending against property and infrastructure. There is growing interest in extending exposure to other areas, including corporate direct lending and asset-based finance.
For asset managers, this creates opportunities to develop investments that meet insurers’ requirements. However, the process involves regulatory, credit-rating and structural considerations. Private credit assets do not automatically qualify for inclusion in matching adjustment portfolios, meaning their cash flows and legal structures may need to be adapted to meet the relevant criteria.
The matching adjustment allows eligible life insurers to discount certain liabilities using a rate that reflects the credit-adjusted yield on assets held to match those liabilities, rather than relying solely on the risk-free rate. By reducing the present value of liabilities, the mechanism can reduce technical provisions and affect the capital insurers need to hold.
Regulatory changes introduced in 2024 expanded the treatment of certain assets with highly predictable cash flows and removed the previous disproportionate effect associated with some credit-rating downgrades below investment grade. The Matching Adjustment Investment Accelerator, introduced in October 2025, also provides eligible insurers with a route to add qualifying assets before receiving formal approval, subject to specified limits and conditions.
These provisions have implications for the types of investments insurers can consider. However, eligibility remains dependent on the characteristics of individual assets, the structure of the investment and regulatory approval. The availability of additional yield does not automatically translate into a greater matching adjustment benefit, as the treatment of credit risk remains relevant.
Structured credit provides one way of adapting private credit exposures to insurers’ requirements. Private debt collateralised loan obligations can pool loans and issue different classes of notes, with senior notes potentially qualifying for matching adjustment treatment. These structures offer scope for credit enhancement but bring additional regulatory, capital and reporting requirements.
Rated note feeder structures provide another approach. These typically invest in an underlying private credit fund and issue rated notes alongside a subordinated interest. The notes may be structured to qualify for matching adjustment treatment, although these arrangements can offer less scope for credit enhancement than collateralised loan obligations.
Both approaches require consideration of the parts of the structure that do not qualify for matching adjustment treatment. Finding investors for subordinated notes or equity interests can be a significant factor in determining whether a transaction is commercially viable.
Fund finance is another potential route. Longer-dated loans to funds may offer cash flows that are better suited to insurers’ liabilities, provided the arrangements include appropriate contractual payment terms and protections. Short-term financing may offer additional yield but can be less suitable for matching long-dated annuity obligations.
Volta Finance Ltd (LON:VTA) is a closed-ended limited liability company registered in Guernsey. Volta’s investment objectives are to seek to preserve capital across the credit cycle and to provide a stable stream of income to its Shareholders through dividends that it expects to distribute on a quarterly basis.
