A hedge fund manager who famously achieved a 900% return by shorting the subprime market during the 2008 global financial crisis is quietly positioning for another major bearish trade, this time targeting the US insurance sector.

Lee Robinson's London-based asset management firm, Altana Wealth, is establishing short positions via credit default swaps (CDS) on Lincoln National Corp (NYSE: LNC), MetLife Inc (NYSE: MET), and Berkshire Hathaway Inc (NYSE: BRK.B). He has also launched a new fund to bet on an inevitable downturn in private credit, a cooling of the AI hype, and the impact of tightening liquidity on corporate valuations. Robinson draws a parallel between the current low market volatility and the period just before Lehman Brothers' collapse in 2008, stating, "In August 2008, we were scratching our heads, completely unable to understand how volatility could be that low. It feels a bit like that now."

Strategy Gains Followers

This strategy is reportedly attracting imitators. Other hedge funds are gradually joining the move to short insurance company CDS, and Wall Street institutions like JPMorgan and Goldman Sachs are also participating at client request. Data from the Depository Trust & Clearing Corporation (DTCC) shows that as of May 22, the net notional amount of CDS bets on US insurers has risen to $5.5 billion from under $4.9 billion at the end of last year, with trading volume in related contracts also increasing and the cost of purchasing default protection beginning to climb.

Although the CDS spreads for the aforementioned insurers have widened recently, the absolute levels remain relatively low. For instance, Lincoln National's latest quote is around 142 basis points, far from levels seen in truly distressed companies. This suggests that if genuine market turmoil occurs, these short positions still have significant profit potential.

An Indirect Approach to Shorting Private Credit

Robinson's argument is not that insurers face an existential threat, but is more nuanced. He believes the market has not fully priced in the impairment risk that could be triggered in this relatively untested debt arena, while insurers' allocations to private credit continue to grow. Furthermore, since private credit itself is difficult to short directly, gaining exposure through insurance company CDS is a more feasible operational path.

Over the past decade, asset managers have heavily tilted insurance assets towards private credit in pursuit of yield and diversification, a trend particularly pronounced during the era of low interest rates. A Moody's analysis of US life insurers shows that by the end of 2025, about one-fifth of the industry's $4 trillion in fixed-income holdings will be allocated to illiquid assets, primarily private credit, up from 18% the previous year. Researchers from the Chicago Fed noted in a working paper that this shift is especially evident among life insurers owned by asset management giants with private equity arms, such as KKR and Apollo Global Management. The researchers wrote, "Insurers have become deeply intertwined with the broader private credit ecosystem."

Some insurers have publicly showcased their commitment. Lincoln Financial partnered with Bain Capital last year to launch a fund providing individual investors access to private credit. MetLife stated that as of March 31, it held about $85 billion in what it considers "high-quality" private fixed-income assets. Robinson's concern lies here—he argues that corporate credit spreads remain near historic lows, and the market is not adequately reacting to the potential impact of AI on software borrowers within private credit or to early warning signs from individual corporate blow-ups.

Warning Signs Intensify

Warning signals are beginning to emerge in the market. The cost of CDS protection for major US insurers, including American International Group (AIG), has this year exceeded the overall North American investment-grade credit default swap benchmark index. In Europe, insurers like Allianz, Generali, Aviva, and AXA show a similar trend compared to their local high-grade CDS indices. The widening has even drawn attention from the European Central Bank, which has publicly warned about potential losses for insurers.

A report led by Moody's analyst Manoj Jethani this month noted that while the shift to private credit by insurers has its rationale, it introduces complexity and concentration risks. "Risks are emerging—particularly in the middle-market direct lending space—with weakening credit quality and rising borrower stress," the report stated.

Mark Lieb, CEO of Spectrum Asset Management, which focuses on primary securities from issuers like insurers, also suggested that private and institutional investors will face more pressure ahead, and insurers may have to write down some investments. He said his firm has made internal adjustments to some of its insurance holdings: "In the relevant parts of these companies' portfolios, a higher degree of vigilance is required."

Several insurers have responded. A MetLife spokesperson cited recent comments from CFO John McCallion, stating that about 95% of the company's private debt portfolio is investment grade and is "highly diversified and resilient across market cycles." Allianz expressed satisfaction with its private debt exposure, possessing a "very high-quality, diversified portfolio." Lincoln National did not respond to requests for comment. Berkshire Hathaway declined to comment. Aviva also declined to comment. AXA and Generali did not respond.

A Veteran's Return

Robinson, who previously worked at a firm owned by hedge fund billionaire Paul Tudor Jones, has a long track record in opportunistic and distressed debt bets. During the 2008 crisis, he allocated a small portion of capital to short the subprime market, turning $20 million into $200 million. This helped his two Trafalgar funds post annual gains of 5% and 26%, respectively, while the overall hedge fund industry averaged an 18.3% loss.

Subsequently, he launched a digital currency fund in 2014, which has achieved significant gains since inception. He has also scored wins on bets involving Lebanese sovereign debt and Fannie Mae junior preferred securities. His Credit Opportunities Fund is up 47.5% year-to-date, with a cumulative return of 416% since its 2020 launch.

However, Robinson also has unresolved bets. His fund holds claims on the Additional Tier 1 (AT1) bonds of Credit Suisse that were wiped out during its takeover by UBS, with related litigation still ongoing.

In his new short positioning, Robinson has also layered single-stock option positions into the new fund, creating a diversified portfolio. He states plainly that it would take just one distressed insurer—"any single blow-up event"—to trigger a chain reaction across the entire industry.

"Just one stressed insurer," Robinson said. "Any single blow-up could send ripples through the whole industry."