US life insurers have rapidly expanded their use of a structured investment vehicle that cuts their regulatory capital costs while gaining exposure to private credit. Now, the National Association of Insurance Commissioners (NAIC) is taking a closer look at how those structures should be treated under statutory reporting rules.
A sector-in-depth report published by Moody’s Ratings finds that rated note feeder (RNF) structures have become among the fastest-growing fund finance vehicles for US life insurers. Aggregate insurer allocations to fund finance has risen from 1.3% to 1.9% of cash and invested assets between 2024 and 2025, according to Moody’s survey of rated US life insurers. That increase, nearly half again as much in a single year, reflects how quickly these structures have moved from niche to mainstream on life insurer balance sheets.
An RNF is a special purpose vehicle that issues rated debt, typically senior and junior notes, alongside an unrated equity tranche. It then invests the proceeds into a private credit fund as a limited partner. The structure allows life insurers to access private credit strategies such as direct lending, infrastructure, and asset-based finance through instruments that qualify as bonds under statutory accounting rules.
That classification is the key. A senior note rated A2 carries a risk-based capital (RBC) charge of just 0.82% for a life insurer under NAIC rules, compared to a 30% charge for a direct fund investment reported on Schedule BA, a roughly 36-to-one difference in required capital. That gap translates directly into how much an insurer can deploy, and at what cost, according to data cited in the Moody’s report.
That gap explains why adoption has accelerated. Private credit, using a broad definition that includes private placements and mortgage loans, accounted for an estimated 35% of US life insurance investments at year-end 2025, according to Moody’s. RNFs have emerged as one of the more capital-efficient ways to access that market. The NAIC estimates US insurers held approximately $1.2 trillion in private credit at the end of 2025, equivalent to roughly 13% of cash and invested assets.
The capital efficiency comes with a set of structural constraints. RNF ratings are typically assigned on a private letter basis, meaning the rating, rationale, and underlying portfolio details are not publicly disclosed. That limits the ability of regulators, counterparties, and external analysts to independently assess credit quality, and, as Moody’s notes, creates conditions in which inconsistent statutory reporting across the industry can obscure the true scale of exposure.
The credit protection embedded in these structures, including subordination, overcollateralization, and cash sweep triggers, is designed to insulate senior noteholders from losses. But Moody’s flags that the triggers are only as reliable as the asset valuations that activate them. Those valuations are typically set by the general partner or fund administrator, with limited independent verification. In a sustained downturn in private credit markets, stale or optimistic valuations could delay the activation of protective mechanisms until losses have already eroded subordination.
RNFs have not been tested through a full credit cycle. The structures have grown rapidly during a period of broadly benign private credit conditions. Private credit default rates have been climbing, with Proskauer’s Private Credit Default Index recording a rate of 2.73% in the first quarter of 2026, up from 1.84% in the third quarter of 2025, before easing slightly to 2.51% in the second quarter of 2026. How RNF structural protections perform under sustained deterioration in underlying fund portfolios remains an open question.
The NAIC’s Statutory Accounting Principles Working Group (SAPWG) has reviewed RNF structures across multiple working groups over several years. The core concern is that insurers may be holding instruments classified as debt that carry the economic risk profile of equity. The NAIC’s principles-based bond definition (PBBD), effective January 1, 2025, introduced a rebuttable presumption that debt instruments collateralized by equity interests do not qualify as bonds, though structures backed by private credit with predictable cash flow can still qualify for Schedule D reporting under that framework.
At its August 12, 2026 summer national meeting, the SAPWG exposed revisions to its bond accounting rules targeting a fast-growing category of insurer investment it termed “multi-collateral structured credit investments.” The supporting materials also signaled that a broader follow-on project is anticipated to address reporting refinements for feeder funds and other forms of fund finance, according to documents published by the NAIC. If the statutory treatment of RNFs changes significantly, the capital efficiency that has driven insurer adoption of these structures diminishes, and so does demand for them.
That regulatory uncertainty sits at the intersection of life insurer balance sheets and the broader insurance market. Life insurers are increasingly turning to less-liquid and privately rated fixed-income assets to enhance investment returns, a trend with direct implications for insurer balance sheets and policyholder risk. The capital treatment of those assets also determines how much room life insurers have to write business and absorb losses. A material shift in how RNFs are classified would ripple through investment strategy, product pricing, and ultimately the capacity that life insurers can offer the market.
