Private Credit Losses May Hit Insurers More Than Banks, ECB Says

European insurers and pension funds would likely be hit harder than banks by fallout from losses in the private credit industry, the European Central Bank said after simulating a “severe” shock to the market.

The “illustrative exercise” included three stages: direct private credit losses, further hits from loans to software firms in correlated leveraged debt markets and broader second-round market revaluations, the ECB said in an extract from its financial stability review published on Tuesday.

Insurers faced the biggest impact in absolute terms because of their larger, less senior exposures to private credit and equity holdings in the broader market revaluation, the ECB said. Pension funds were the most heavily affected by aggregate losses from all three stages in terms of total assets, the ECB said.

Banks’ losses were “contained,” not exceeding 1.3% of total equity thanks to seniority of their loans to private credit funds and relatively small size of the positions, the ECB said. While banks have a “high” exposure to leveraged loans, losses from associated exposures to the software sector or from broader market revaluations remain small in aggregate, the ECB said.

Private credit has been rattled in recent months by concerns about overspending on artificial intelligence, the technology’s disruptive power notably as regards the software industry and doubts over lending standards. The ECB said that the upstart industry in isolation is unlikely to threaten financial stability in euro area, yet its links to traditional finance need to be monitored continuously.

Other findings from the article released ahead of the financial stability review publication on Wednesday:

• Private credit funds run from the euro area had about €100 billion ($116 billion) in assets under management in 2025
• Euro area insurers have about €211 billion of exposure to private credit, or 2.3% of total assets
• Pension funds have €52 billion, or 1.4% of total assets
• Banks have €62.5 billion, or 0.2% of total assets
• In the case of both banks and insurers, exposures are “highly concentrated in a small number of large institutions.”

Photograph: A euro symbol at the headquarters of the European Central Bank in Frankfurt. Photo credit: Liesa Johannssen/Bloomberg