Short sellers’ bets against US life insurance stocks more than doubled in the past year to over $5 billion, a Reuters analysis of ORTEX data shows. Analysts say the move in part reflects concerns about exposure to the opaque private credit sector.

Jitters about private credit — lending to companies by non-banks, such as private equity funds and asset managers — have shaped markets in recent months, after portfolio managers were found to hold debt from bankrupt auto firms and a UK mortgage provider accused of fraud.

“Concerns are not about a single blow-up, but about potential structural vulnerabilities with the (private credit) asset class having much less regulation and oversight than the traditional banking system,” said Mediolanum International Funds head of fixed income Daniel Loughney.

“Institutional exposure to the asset class has grown significantly over the past decade. Overall we see a problem brewing that will affect the life assurance markets, annuity markets and the asset management industry,” said Loughney.

Private credit holdings among US life and annuity insurers more than doubled over the last 10 years, during a period of historically low official interest rates, according to ratings company and insurance industry specialist AM Best.

US life insurers have roughly a 35 per cent exposure of their balance sheet tied up in private lending, the International Monetary Fund has reported, citing Moody’s data.

This type of alternative credit offers higher yields and long-term steady returns, fitting the mandate of insurance companies which need to match investment horizons with the prospect of payouts over years or decades.

Hedge funds have sensed an opportunity.

Traders added almost $3 billion to the value of short bets, or bets that a stock price will decline, on 10 top US life insurance companies in the past year, bringing the total to around $5.3 billion, Reuters’ calculations based on data provided by financial analytics firm ORTEX show.

These firms saw a more than 130% increase in the proportion of their stock that traders borrowed in order to take out short positions on these companies, the data showed. Concerns about private credit are also being reflected by investors pulling money from retail funds that package up private loans to middle-market companies and trade them on public exchanges. Questions over the value of the underlying loans, many of which have been made to AI infrastructure companies, have arisen from whipsawing tech markets.

Pricing a “fairly severe” outcome

The S&P 500 US insurance index, which includes life insurers, has fallen almost 5 per cent so far this year versus a 4.7 per cent rise for the broader S&P index.

Barclays analysts estimate that the collective earnings per share of 15 US life insurance companies will drop by almost 7 per cent over the course of this year, saying that markets appeared to be pricing in a “fairly severe” outcome, including either a recessionary backdrop or losses within private credit portfolios. However, they added that these concerns were overdone.

When looking at short bets against global insurance firms, the value grew by more than 60 per cent in the 12 months to April 15, to over $31 billion, according to calculations by Reuters using S&P Global and LSEG data.

Short positions in Principal Financial Group soared more than 80 per cent in the past year, hitting a peak of over 4 per cent in March, while bets against Brighthouse Financial reached a record high of over 13 per cent of the available stock on March 9, the ORTEX data showed. Both companies declined to comment.

Short positions in Prudential, the only company to comment, rose to 3.27 per cent from 1.96 per cent.

It said that while it does not comment on market activity, it remains focused on disciplined risk management and long-term value creation.

“Life insurers owned by PE (private equity) firms are very long private assets and have very limited capital surplus available,” said Alberto Gallo, founder of hedge fund Andromeda Capital. The firm holds bets against insurers’ bonds.

Barclays, in a separate note on April 20, said it believed that for most insurers the issue was more about transparency than acute credit issues.

Tom Gober, a US-based former insurance examiner who has testified before Congress and US regulators and also advises hedge funds, calculates that insurers have made about $1.54 trillion worth of transactions into opaque subsidiaries called captive insurance companies. Gober does not believe recent regulatory changes in the United States will go far enough to cure the lack of transparency, especially for offshore holdings.

“Perhaps the only regulatory-like message left is for the investment industry to wear the regulator’s hat and short the parent companies,” he said.

Published on April 28, 2026