---
type: claim
domain: internet-finance
description: "Alternative asset managers acquired life insurers to fund private credit origination with annuity deposits, creating a fee-on-fee machine where the 'permanent capital' absorbing AI-disrupted software defaults is actually American household savings in life insurance products"
confidence: speculative
source: "Citrini Research '2028 Global Intelligence Crisis' (Feb 2026); private credit data from Moody's, Preqin; challenged by Bloch who argues 3-4% loss rate is absorbable"
created: 2026-03-05
depends_on:
  - "[[optimization for efficiency without regard for resilience creates systemic fragility because interconnected systems transmit and amplify local failures into cascading breakdowns]]"
sourced_from:
- inbox/archive/internet-finance/2026-02-22-citriniresearch-2028-global-intelligence-crisis.md
---

# private credits permanent capital is structurally exposed to AI disruption through insurance-company funding vehicles that channel policyholder savings into PE-backed software debt

The private credit market grew from under $1 trillion in 2015 to over $2.5 trillion by 2026. A meaningful share was deployed into software and technology deals — leveraged buyouts of SaaS companies at valuations assuming mid-teens revenue growth in perpetuity, underwritten against "annually recurring revenue" that was assumed to remain recurring.

The structural vulnerability is not the software exposure itself (estimated at 7-13% of assets) but the funding mechanism. Over the prior decade, large alternative asset managers acquired life insurance companies and turned them into funding vehicles:

- Apollo bought Athene
- Brookfield bought American Equity
- KKR took Global Atlantic

The logic was elegant: annuity deposits provided a stable, long-duration liability base. The managers invested those deposits into the private credit they originated and got paid twice — earning spread on the insurance side and management fees on the asset management side. A "fee-on-fee perpetual motion machine that worked beautifully under one condition: the private credit had to be money good."

When AI disrupted the SaaS revenue model — making "recurring" revenue no longer recurring as AI agents replaced the services these products provided — the losses hit balance sheets built to hold illiquid assets against long-duration obligations. The "permanent capital" that was supposed to make the system resilient was not sophisticated institutional money taking calculated risk. It was American household savings, structured as annuities, invested in the same PE-backed software paper now defaulting.

**The opacity problem:** These firms didn't just create insurance-as-funding-vehicle — they built elaborate offshore architectures. US insurers wrote annuities, then ceded risk to affiliated Bermuda or Cayman reinsurers that held less capital against the same assets. Those affiliates raised outside capital through offshore SPVs. "The spider web of different firms linked to different balance sheets was stunning in its opacity. When the underlying loans defaulted, the question of who actually bore the loss was genuinely unanswerable in real time."

**The containment debate:**

*Bear case (Citrini):* Insurance regulators force insurers to raise capital or sell assets → forced selling depresses prices → more defaults → spiral accelerates. The locked-up capital that "couldn't run" was life insurance policyholder money, and "the rules are a bit different there." Political and regulatory dynamics change completely when the victims are policyholders, not institutional LPs.

*Bull case (Bloch):* Software defaults were concentrated in a narrow vintage (2021-23 LBOs) in a specific sector (horizontal SaaS). Total exposure ~$80-100B against $2.5T AUM = 3-4% loss rate. Broader portfolio (real estate, infrastructure, asset-backed) performing fine. NAIC tightened concentration limits but stopped short of forced deleveraging. "Financial systems that aren't leveraged 30:1 can absorb losses."

**The open question:** Does the insurance channel change the math? Bloch's containment argument applies to institutional LP capital. But if the losses are ultimately borne by life insurance policyholders, the political pressure for regulatory intervention may be disproportionate to the loss size. The 2008 analogy isn't the leverage ratio — it's the political toxicity of losses hitting "Main Street" savings.

This claim is rated speculative because the contagion mechanism is plausible but unverified, and Bloch's containment argument has historical precedent on its side (private credit did absorb the 2020 shock without systemic contagion).

---

Relevant Notes:
- [[optimization for efficiency without regard for resilience creates systemic fragility because interconnected systems transmit and amplify local failures into cascading breakdowns]] — the insurance-as-funding-vehicle architecture is a textbook case of efficiency optimization creating hidden tail risk
- [[minsky's financial instability hypothesis shows that stability breeds instability as good times incentivize leverage and risk-taking that fragilize the system until shocks trigger cascades]] — the "permanent capital" narrative itself is a Minsky phenomenon: stability (locked-up capital) encouraged risk-taking (concentrated software bets) that fragilized the system
- [[financial markets and neural networks are isomorphic critical systems where short-term instability is the mechanism for long-term learning not a failure to be corrected]] — the private credit structure suppresses short-term instability (no forced selling, no mark-to-market) which may mean less learning and larger eventual corrections
- [[giving away the intelligence layer to capture value on capital flow is the business model because domain expertise is the distribution mechanism not the revenue source]] — the insurance companies "gave away" conservative asset management to capture flow (annuity deposits), then the flow was channeled into riskier assets

Topics:
- [[internet-finance overview]]
