Although European insurance companies hold around double the amount of private debt assets, mutual funds have become a driving force in credit markets, as they represent a much greater proportion of daily market activity. However, insurers' decisions will continue to influence structural changes in demand for and the pricing of credit, according to Fitch. "Credit has become more "retail" in nature, in Fitch's view, although mutual fund investors' focus has changed in the past months, with a gradual switch from fixed income to equity," said Aymeric Poizot, Senior Director and head of Fitch's EMEA Fund and Asset Manager team.

European insurers hold about €2trn of private debt, while pension funds hold €500 bn. Insurance companies are the most prominent European investors in private debt, given the sheer size of their portfolios (€5.5trn excluding unit-linked investments), of which approximately 75 per cent is invested in bonds, compared with 45 per cent at pension funds. "Whether it is driven by tactical decisions or regulation such as Solvency 2, any reallocation to or within credit portfolios by European insurers is likely to weigh on the demand and pricing of private debt," says Monica Insoll, Managing Director in Fitch's Credit Market Research group.

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