Pay No Attention to the Credit Behind the Curtain 

By: Eric Lohmeier, CFA

Private Credit, Insurance, and Iowa’s Place at the Center of Modern Finance 

A peek behind the curtain of the private credit Industry today and Iowa’s historical (and future) place in the center of that black hole: These yellow brick roads all lead to Iowa (sorry, Kansas) – but there is an all-too-familiar carnival barker behind the curtain…  

Prior to the “war-not-war” in Iran in February 2026, the headlines in every global business journal were focused dead center on the global private credit business. Before private credit became a multi-trillion-dollar institutional asset class, Iowa’s life and annuity insurance industry had already spent decades quietly writing this story from the very beginning. With one of the country’s deepest life and annuity ecosystems, Iowa remains one of the country’s most important insurance domiciles, and the state’s regulators sit unusually close to the intersection of life insurance, annuities, private assets, and alternative asset managers. As the story of private credit continues to unfold, Iowa will play an important role in defining how transparent, capitalized, and durable the next generation of long-duration liabilities will be. 

Iowa Roots 

The mutual insurance industry in Iowa has a 150+ year history, so we’ll focus on the high points. An easy starting point is AmerUs. The Des Moines-based insurer partially demutualized and went public in 1997 before completing its full demutualization in 2000. Private lending obviously existed long before AmerUs, but this ingenious legal and transactional maneuver was really the first step in what is today’s “$1.5 trillion” private debt industry. The traditional sleepy mutual life insurance industry was forever changed, and AmerUs’s later history illustrates how Iowa became a proving ground for the convergence of life insurance balance sheets and alternative asset management. 

In 2006, Aviva Investors of the UK acquired AmerUs for approximately $3.1B in order to leverage its life and annuity sales distribution platform and especially AmerUS’s assets under management (“AUM”) – essentially, the aggregated premiums paid by life insurance policyholders that form the basis for the eventual payout of said premiums at maturity (annuities) or death (life policies)¹. The model that underpinned this market for over a century was that these assets were essentially reinvested in liquid, investment-grade bonds on a maturity schedule that corresponded to the actuarial assumptions regarding the timeline of payouts.  

After the financial crisis exposed capital pressure at Aviva, primarily caused by some questionable strategies that did not pan out, Athene (at the time controlled by Apollo Global Management) acquired Aviva in 2013. The transaction brought roughly $60B of assets into Athene and added approximately $44B to Apollo’s AUM; the insurance company was not merely an operating business, it was also a very large, durable pool of investable capital. No single trade in Wall Street history made more billionaires possible than this seminal acquisition of what was once an Iowa jewel. Unfortunately for Iowa and its once-mighty institutional investment professionals, Apollo / Athene spent the next few years transitioning the entirety of the investment management to NYC and other related affiliates. Power of scale.   

The ultimate genius of Apollo’s strategy behind Aviva’s acquisition was, like so many of the world’s discoveries, likely a bit of a happy accident. First, what was known to Apollo – in-house management of life/annuity investment assets was “inefficient” in two primary ways:   

1. Mutual life companies of the past tended to maintain surpluses far in excess of regulatory minimum capital requirements. Public (or private equity-backed) insurance companies focused on return on equity are less incentivized to carry excess capital.  

2. Investment asset portfolios that were dominated by liquid, investment-grade bonds with varying maturities generally yielded less than investment assets that incorporated “carefully structured,” less-liquid (and far less transparent) private assets.  

Combine these observations with recurring asset-management fees and the economics became difficult to ignore. As immortalized by Kevin Spacey in The Usual Suspects (and originally from the less well-known but equally treasured Frenchman Charles Baudelaire), “The greatest trick the devil ever pulled was convincing the world he didn’t exist.” This quote is referenced both as a measure of awe and not a small bit of melancholy… awe for the sheer audacity of and respect for the Apollo trade and melancholy for the hollowing out of conservative but competent investment departments decimated by ”efficiencies” and massive risk postures ultimately pushed onto policyholders that have outstripped well-meaning state insurance regulators everywhere. 

While the model was not invented in Iowa, an Iowa-based company helped demonstrate its power at scale. Apollo’s peers eventually adopted similar models:  

• Blackstone became F&G’s investment manager in 2017 and continued this relationship after Fidelity National Financial’s acquisition of F&G in 2020. Fidelity Life and Guaranty was domiciled, in pure Apollo aping, in Des Moines Iowa – uncanny! 

• Carlyle and AIG followed up with a very clever strategy of their own by creating Fortitude Re to manage legacy life and annuity portfolios.  

• Brookfield Re made its splash by fully acquiring our own Des Moines, Iowa-based American Equity Life in 2024 after first establishing a strategic stake in 2020 – altogether a $4.0B acquisition. 

• KKR acquired control of Global Atlantic in 2021, adding roughly $90B of AUM and later moved toward full ownership as the insurance platform continued to grow.  

The Trick Is… 

The economic logic behind these transactions is fairly straightforward: 

For nearly fifteen years, the trade worked spectacularly and helped push private credit from the fringes of institutional investing toward the center of the financial system. Moody’s expects private-credit AUM to exceed $2 trillion in 2026 and approach $4 trillion by 2030, with growth increasingly extending beyond traditional sponsor-backed direct lending into asset-based finance, infrastructure, consumer credit, and other specialty strategies.  

There is nothing inherently sinister about that evolution. Private credit fills financing gaps left by banks, gives borrowers greater certainty and flexibility, and can provide insurers with assets whose duration better matches long-lived liabilities. As is usually the problem in finance, the problem begins when a good trade becomes a crowded one. 

Someone is Pulling Back the Curtain 

The private-credit risks discussed for years are becoming easier to observe in 2026. From PitchBook in August 2026, “Across the ten largest public BDCs, reported non-accrual debt rose to 3.95% of total debt at cost in Q2 [2026], up 20 bps from the prior quarter, while adjusted exposure for the period rose 54 bps to 5.95% on the same basis.” Stress has been particularly visible in loans originated during the aggressive 2020-2021 underwriting vintages.  

Liquidity has become another pressure point. Semi-liquid private-credit vehicles were designed to give individual investors access to an asset class built around assets that, by definition, do not trade frequently. This works smoothly when subscriptions exceed redemptions but creates friction when the direction reverses. The Federal Reserve highlighted elevated redemption requests at certain private-credit vehicles in its May 2026 Financial Stability Report, including requests above contractual quarterly withdrawal limits.  

Another useful stress test lies in the software industry. The sector became a major component of sponsor-backed private credit portfolios during the low-rate era, but today highly levered software borrowers face both higher financing costs and the possibility that AI changes their competitive economics far faster than their lenders initially modeled. The irony is hard to miss: private credit helped finance the software boom, and the next technology wave may be one of the forces testing those loans.  

The most important question may be what sits around the loans. Private credit is increasingly connected to banks, insurers, private-equity sponsors, securitization vehicles, and retail investment products. Banks have not been displaced, they’ve simply started providing fund leverage, financing facilities, securitization capacity, and origination infrastructure to the same private credit ecosystem that supposedly replaced them. S&P has summarized the emerging pressure points as capital, concentration, complexity, and connectivity. That is probably a better framework than asking whether private credit itself is ‘safe’ or ‘dangerous.’ A first-lien loan to a durable cash-flow business and an opaque affiliated structured asset may both carry the private-credit label while presenting very different risks. 

Meanwhile in Iowa 

Beginning with 2026 reporting, the National Association of Insurance Commissioners is now requiring more granular private-credit disclosures, including additional information around fair value, Level 2 and Level 3 assets, payment-in-kind interest, and private ratings. Iowa regulators are participating in the broader effort to understand what is actually sitting on insurer balance sheets and whether existing capital frameworks adequately capture the risks.  

That Iowa helped supply insurance balance sheets on which part of the modern model is built offers a certain kind of symmetry. Our state may now play an equally important role in determining how capitalized and durable the next version of the private-credit model becomes.  

Bottom Line 

This doesn’t end well.  Recent news of Mark Walter and Guggenheim-related insurance entities, Delaware Life Insurance Company and Clear Spring Life and Annuity Company, are certainly an extreme example of the black box that is under the “private credit” umbrella. Bloomberg Law reported in July of this year “Delaware Life revealed that it had $16 billion more private credit assets linked to affiliates than it had previously reported… That restatement caused Delaware Life’s total related party investments as of Dec. 31 to jump to at least $17 billion, or at least 39% of total invested assets, compared with the $1.4 billion, or 3%, reported earlier this year.” This sole instance represents a $21 billion problem in two relatively small insurers playing out in real time. An egregious example, but I envision the overall industry’s issue will be more related to overeager underwriting (fee-driven, of course) based on high-multiple cash – flow lending; 5x or greater in many private credit deals, often with very forgiving covenant-lite packages for borrowers and long amortization schedules. The necessity to refinance these loans will almost certainly continue to add negative headline risk and in my estimation, the drip, drip, drip in today’s news cycle is a sign of much stronger undercurrents in private credit problem loans. The story is in the first chapter… but the tide has started to recede, and it is highly likely that it is going to catch a litany of quite naked and out-of-shape swimmers in its wake. 

1. These investments were by and large managed by direct employees of the respective insurers in the investment departments, MBA / Chartered Financial Analyst types. As indexed products became popular in the early 2000’s (products tied to some level of performance of the S&P 500 with guaranteed minimum returns) they added in-house options / derivatives experts to the staff with a little help from the highly profitable Wall Street trading desks. Bond trading was lucrative for decades on Wall Street, but the Bloomberg terminal changed all of this by monopolizing bond trading in the 1990’s and the ultimate introduction of “Trace” which made once obscure ‘spreads’ (aka profits) on bond trades transparent around 2002 – over the next year or so this took bond trading from a business that fed legions of Wall Street bonuses into a ‘scale’ business and commissions were reduced by up to 90% almost overnight. Hence the ‘options’ platforms growth via indexed annuities (this will ultimately get to ‘private credit’) driving trading desk popularity throughout the 2000’s… 
   Side note: I spent about 6 months in 2002 trading bonds – #worst-timing-ever – never before or since was I able to make so much money with less brain power and average effort! Led to the last 20+ years of painstakingly putting in max effort and mental anguish into a much harder to disintermediate M&A career for whatever that is worth! 
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