Global insurer AIG has significantly pared back its private credit activity, a strategic shift announced by its finance chief on Friday that helped reassure investors and saw its shares climb approximately 5% in early trading. AIG is a global insurance organisation providing a range of insurance products and services across property, casualty, life, and retirement solutions. This decision emerges amidst escalating scrutiny of liquidity within the private credit market, driven by elevated default rates and investor apprehension concerning its rapid expansion and opacity.
Chief Financial Officer Keith Walsh confirmed the reduced deployment during a post-earnings call, stating, “We’ve slowed our deployment in this asset class, given market conditions.” This announcement followed AIG’s report on Thursday of a sharp rise in quarterly adjusted profit, boosted by strong underwriting and a notable decline in catastrophe-related losses. Walsh clarified that AIG maintains its direct lending on its balance sheet and through business development companies (BDCs), which are publicly traded lenders to private firms offering higher yields with associated credit and liquidity risks.
Investor concerns primarily centre on whether reported net asset values (NAVs) accurately reflect strains in the private credit market, as BDC portfolios are valued using fair-value estimates and internal models that can lag real-time credit shifts. Walsh detailed AIG’s exposure: “Our direct lending exposure is about $1.2 billion, less than 1.5% of the general insurance investment portfolio. It is a diversified portfolio of middle market loans with an average loan size of about $6 million.” This portfolio reassurance and the non-deployment decision provided a boost to AIG’s stock, which had suffered a nearly 13% year-to-date decline. Broader worries also extend to exposure within software-heavy sectors, particularly regarding AI-driven disruption and valuation practices.
