Beyond $1 trillion: The next chapter for insurance and private capital

Over the past decade, the US life insurance industry has undergone a profound transformation. What began as opportunistic private-capital deployment into legacy annuity and life insurance blocks has evolved into a convergence of insurance carriers, alternative asset managers, and long-duration capital providers.

At the center of this transformation is a self-reinforcing value creation model—often described as a “virtuous flywheel.” It aligns liability origination, differentiated asset management, flexible capital structures, and, increasingly, technology-enabled operating efficiency to drive growth and returns.

This model has achieved significant scale and relevance over the past decade. Private-capital-backed insurers have scaled assets at rates exceeding 20 percent annually, with assets totaling nearly $1.5 trillion in 2025. These insurers are supported by more than $100 billion in capital across majority- or wholly owned onshore and offshore platforms and sidecars.¹A sidecar is a structure in which an insurer transfers liabilities to a new vehicle that is capitalized by the insurer and third-party investors. The ability to pair predictable long-duration liabilities with higher-yielding private assets has created a powerful engine for balance sheet expansion and earnings growth for insurers.

Yet the next phase of convergence will look materially different from the last. While demand for life insurance and annuities remains stable—driven by demographic shifts, rising retirement balances, and growing demand for predictable lifetime income—the conditions that enabled the past decade’s returns are changing. The cost of funds continues to rise, and asset spreads are narrowing, squeezing economics. The influx of capital is intensifying competition for both liabilities and assets. Regulatory scrutiny has increased across reinsurance and offshore capital structures. And productivity gains in insurance have lagged behind growth, exposing operating inefficiencies across much of the sector.

This article examines how the insurance–private-capital flywheel has evolved over the past several years, outlines the emerging constraints on the model, and explores the strategic choices facing insurers and asset managers seeking to build resilient platforms for the next era of convergence.

The scale-driven era of convergence: 2008 to 2025

To understand what must change, it is first necessary to understand how the current model was built and why it proved so powerful. The integration of private capital into the insurance sector began taking shape after the global financial crisis of 2007–09. Persistently low rates and capital strain reduced the attractiveness of certain long-duration liabilities for traditional insurers, leading many to offload legacy books of business. Private-capital firms stepped in to acquire these liabilities, using their investment capabilities and flexible capital structures to build a meaningful presence in the life and annuities market.

Over the past decade, private-capital-backed insurers expanded rapidly, with assets growing at approximately 21 percent annually. Much of that growth has been concentrated among a small number of very large insurers, which now account for more than half of the total assets held by private-capital-backed carriers (Exhibit 1). Many of these large insurers have doubled their total assets—across their core insurance entities and affiliated sidecars—since 2020.

Growth, however, hasn’t been limited to the largest insurers. Smaller platforms, particularly those with less than $30 billion in assets, also experienced strong growth, supported by abundant capital inflows and sustained demand for spread-based annuity products.

This rapid growth has been fueled by a significant increase in capital flowing into the sector. The total capital deployed across private-capital-backed insurers²This includes majority- or wholly owned onshore and offshore entities, sidecar investments, retained earnings, and other sources of organic capital generation. is estimated to have exceeded $100 billion in 2025, up from roughly $11 billion in 2014 (Exhibit 2).

The way capital is deployed has also changed. Historically, most new capital was invested directly into insurers themselves, whether in domestic insurance entities or affiliated offshore reinsurers designed to optimize capital efficiency. Since 2022, growth has shifted toward alternative structures. More than 40 percent of new capital has flowed into sidecars, and an additional 10 percent has been deployed through minority investments and strategic partnerships. Sidecars enable insurers to access specialized investment capabilities without full ownership, while allowing asset managers to expand fee-based businesses supported by long-term insurance capital.

Fragmentation and divergence across platforms

Geographic strategies have diverged as platforms make trade-offs around scale, capital efficiency, and control. Newer and smaller carriers increasingly use different jurisdictions for offshore reinsurance. These smaller platforms have also retained more risk onshore, holding approximately 75 percent of liabilities domestically, compared with roughly 40 percent for the largest carriers. Larger platforms, by contrast, have continued to emphasize a mix of on-balance-sheet and capital-light models, using offshore balance sheets and third-party capital to scale liabilities while generating fees for affiliated asset managers.

As capital structures have evolved, asset–liability profiles have begun to diverge. Larger carriers have extended liability durations, while durations at smaller platforms have remained flat or shortened. Longer-duration liabilities give larger carriers more flexibility to allocate to long-dated assets, particularly mortgages and other forms of asset-backed finance. Large private-capital-backed insurers now allocate around 25 percent of assets to long-dated assets, compared with roughly 8 to 14 percent across the broader industry. This positioning is reinforced by ownership of origination platforms, allowing large carriers to source assets directly, capture more of the value chain, and align underwriting with liability needs. Smaller carriers, by contrast, have relied more heavily on third-party sourcing, gaining speed and flexibility but often ceding economics and control.

While the industry overall has increased its allocation to private credit, we expect performance to diverge meaningfully across carriers. Insurers that have adhered more rigorously to disciplined risk management and underwriting practices are likely to emerge as winners, while those that have stretched for yield without comparable controls may face greater volatility and downside risk.

On the liability side, smaller private-capital-backed insurers remain concentrated in individual annuities, where scale can be built relatively quickly and capital deployment is straightforward. Larger platforms, by contrast, have broadened their liability mix, completing transactions in long-term care and universal life with secondary guarantees, while selectively expanding into adjacent property and casualty risks. They have also increased activity in the UK bulk-purchase-annuities market, Japan, and other mature Asian markets.

As liability profiles diversify, business models are fragmenting. Distinct archetypes have emerged, including retail-focused platforms, reinsurance specialists, hybrid primary-and-reinsurance models, and those focused on US-centric versus global liability origination. These choices reflect fundamental differences in scale, risk appetite, and sources of competitive advantage.

Cost efficiency has emerged as a differentiator among private-capital-backed insurers (Exhibit 3). Some larger carriers have realized benefits from scale, though performance dispersion remains wide, and many continue to struggle to translate size into sustained productivity gains over the past two to three years. At the same time, several newer platforms have achieved structurally lower cost bases not through scale, but through operating models built on modern technology stacks and simplified processes, unencumbered by legacy systems.

The inflection point: Why the old playbook is no longer sufficient

An aging population, growing retirement savings, and rising interest in predictable lifetime income continue to drive inflows into life insurance and annuities. US individual annuity sales are estimated to have exceeded $450 billion in 2025, up from $426 billion in 2024 and nearly double 2021 levels.³Data are from the Life Insurance Marketing and Research Association. Although growth has slowed compared with the exceptional surge of the previous three years, sales remain well above historical averages, supported by higher long-term interest rates and the growing number of retirees converting their savings into predictable income.

But despite these favorable demand dynamics, profitability has been squeezed. Average returns across primary and reinsurance businesses are trending toward low double-digit—and, in many cases, high single-digit—levels. Returns remain under persistent pressure for various reasons, including the following:

• Selling life insurance and annuities has become more expensive. Competition for financial advisors is increasing, and so is their compensation. As a result, distribution costs for annuities have risen from about 1.18 percent of assets in 2022 to about 1.35 percent in 2024.
• Investment margins are tightening. Returns on assets relative to the cost of liabilities are narrowing as interest rates have been volatile and competition in private credit and asset-backed lending has increased.
• Improving returns through capital efficiency has become harder. Regulations across offshore jurisdictions are becoming more aligned and stricter, and reinsurance structures are facing greater scrutiny. That reduces some of the capital advantages insurers previously relied on.

These pressures have intensified as more capital has entered the market. Since 2020, roughly 30 new private-capital-backed insurers and sidecars have launched, increasing competition for insurance liabilities and reducing the capital advantages that previously supported higher returns. So far, however, only a few sidecars have achieved scale.

At the same time, productivity has largely stalled. Our analysis shows that many life insurers continue to rely on legacy technology systems, fragmented data, and labor-intensive processes, making the sector less efficient than other areas of financial services.

In this more competitive environment, prevailing industry models will need to adapt to address emerging challenges and opportunities. Several structural shifts are shaping the next phase of the sector’s evolution:

• Competitive positions are diverging across ownership models. Publicly traded insurers face valuation pressure and limited flexibility, making it harder to invest aggressively in growth or differentiated capabilities. Mutual insurers benefit from long-term capital and strong alignment between assets and liabilities, and many have expanded beyond traditional product lines. Private-capital-backed insurers continue to grow in importance, but leadership is concentrating among a small number of scaled, consistently performing businesses. As investors become more selective and favor more scalable platforms, weaker, newer, or less differentiated insurers may struggle to meet return expectations, increasing the likelihood of consolidation.
• Distribution and product economics are shifting. Consolidation among independent distributors has increased their bargaining power. With fewer distribution partners controlling more sales volume, insurers’ costs to sell policies have remained high. In response, some insurers, particularly mutuals, are investing in captive or quasi-captive distribution networks to regain control and manage costs.⁴Captive distribution refers to sales networks owned or fully controlled by an insurer and primarily dedicated to selling its products. Quasi-captive models involve strategic partnerships or minority ownership stakes that provide economic alignment and preferential access without full ownership. At the same time, carriers are testing new channels such as registered investment advisors and defined-contribution platforms. Over time, the product mix is likely to shift from shorter-duration spread products to longer-term, income-focused solutions that better meet retirees’ demand for security.
• Insurers are moving deeper into asset management. Insurers are taking a larger role in the investment process—from sourcing and structuring assets to holding and syndicating them—rather than simply buying assets from third parties. This allows them to capture more value and gain better insight into their portfolios. At the same time, investment teams are working more closely with insurance businesses to better match assets to long-term liabilities. As a result, the traditional distinction between insurers and asset managers is blurring further, even as firms specialize in areas where they have a competitive advantage.
• Business models are becoming more specialized. Instead of doing everything themselves, many insurers are focusing on the areas where they are strongest—such as product design, distribution, or risk and capital management—and partnering for the rest. As companies specialize, performance expectations in each area are rising. Being large is no longer enough; firms must excel in the parts of the business they choose to own.
• Technology and AI are emerging as the next competitive frontier. For years, legacy systems and manual processes held insurers back. Now, those same areas represent one of the biggest opportunities to accelerate productivity, improve risk transparency, and speed up decision-making. Our analysis reveals that organizations that are using digital and AI tools across underwriting, claims, and asset allocation are already realizing productivity improvements of 20 to 30 percent compared with peers, even as overall industry productivity has declined over the past two decades and performance gaps between top- and bottom-quartile players have widened. Realizing this potential at scale will require building a modern, scalable AI technology stack.

Strategic considerations for building the insurance–private-capital platform of the future

Platforms that can effectively orchestrate individual components of the flywheel—liabilities, assets, capital, and operating model and technology—while executing consistently across market cycles—will be best positioned to deliver durable value. Crucially, they will also need to ensure these components are well integrated (Exhibit 4).

Sustained strong performance will depend on choices across the flywheel’s four core components:

• Liabilities. Growth opportunities remain, but the emphasis is shifting. In the United States, this includes expansion into more complex liabilities such as long-term care, variable annuities, and universal life, alongside a continued focus on simple spread-based liabilities through reinsurance partnerships with a broad set of primary insurers and selective participation in newer distribution channels such as defined-contribution platforms.

  Execution requirements will also heighten, notably across three areas. Platforms focused on direct retail annuity origination will need to drive share through differentiated product offerings across short- and long-duration products. Effective leadership will be needed, now more than ever, in the independent marketing organization channel, with robust use of data, analytics, and AI to target advisors. And platforms focused on block and flow reinsurance will require dedicated teams capable of proactively sourcing transactions and executing multiple complex deals in parallel.

  Given the proliferation of subscale sidecars, consolidation also represents a meaningful opportunity to increase liabilities and improve operating efficiency. Beyond the United States, select international markets—including the UK pension risk transfer market, Japan, and, more recently, mature Asian ex-Japan markets—offer attractive opportunities for platforms with the appropriate capabilities and risk appetite. In parallel, select areas of the property and casualty (P&C) market are likely to become an increasing focus, as certain long-duration P&C liabilities, such as workers’ compensation, exhibit cash flow and duration characteristics similar to life insurance liabilities.

• Assets. Asset management models are becoming more integrated and selective. Platforms must make deliberate choices about where proprietary capabilities truly create advantage, owning origination in asset classes where insurance capital is a natural fit and partnering where scale or specialization is more efficient. Leading insurers are expanding capabilities across the asset life cycle—including origination, structuring, warehousing, syndication, and capital markets execution—to better manage capacity and recycle capital. At the same time, tighter operating integration between assets and liabilities, supported by shared governance, common data infrastructure, and aligned incentives, is becoming essential to sustained performance.

  A heightened focus on risk management, portfolio monitoring, predictive analytics, and workout capabilities is becoming increasingly critical for insurers investing in private credit.

• Capital. Capital management is evolving from a focus on balance sheet expansion to a broader emphasis on flexibility, durability, and investor alignment. While long-duration institutional capital remains foundational, leading platforms are diversifying funding sources (including selective engagement with smaller institutions and high-net-worth investors), refining on- and off-balance-sheet structures, and exploring greater liquidity through mechanisms such as tradable sidecar interests and secondary markets. Increasingly, capital strategy is being positioned not simply as a growth engine but also as a source of income stability, diversification, and downside resilience across cycles.

• Cost efficiency. Platforms that build structurally lean operating models, enabled by technology and disciplined execution, are better positioned to price liabilities competitively and defend returns as spreads compress. Leading insurers are applying advanced analytics and automation in the most cost-intensive domains, including underwriting, policy administration, actuarial analysis, finance, and investment operations, while embedding standardized processes and clear accountability. Selective use of shared services and global delivery models can further enhance efficiency when paired with strong governance and operating discipline.

Together, these strategic choices will determine which platforms are best positioned to lead in the next phase of insurance–private-capital convergence and to deliver durable value across market cycles.

The convergence of insurance and private capital is entering a new chapter defined less by rapid balance sheet expansion and more by integration, discipline, and execution. Growth remains strong, but as returns normalize, advantages will accrue to platforms that can create a unified system across liabilities, assets, capital, and technology. Those that build structurally resilient models and execute consistently across cycles will define the next generation of industry leaders.