Insurers controlled by billionaire Mark Walter, specifically Delaware Life Insurance Co. and Clear Spring Life and Annuity Co., paid millions of dollars to Egan-Jones Ratings Co. for private credit ratings. These payments were disclosed in regulatory filings and are part of a broader federal investigation by the US Attorney’s Office for the Southern District of New York and the Securities and Exchange Commission (SEC) into whether these insurers failed to properly disclose that certain private credit investments were linked to other entities within Walter’s business empire, TWG Global. The investigation also scrutinizes the reliance on private credit ratings, which can allow insurers to hold less capital than traditional public ratings.
Egan-Jones, a smaller ratings firm, has been instrumental in grading a high volume of private credit deals, with estimates suggesting it graded over 3,000 deals in 2024 with only 20 analysts. The firm faces scrutiny for potentially assigning higher ratings than warranted, as a now-withdrawn National Association of Insurance Commissioners (NAIC) report indicated private ratings could be, on average, 2.74 notches higher than public ratings. This discrepancy can significantly reduce capital requirements for insurers, turning a BBB rating into an investment-grade designation and boosting returns. The firm's practices have drawn criticism, with some institutional investors like BlackRock and Carlyle excluding Egan-Jones from their deals, and a 2022 SEC settlement barring founder Sean Egan from rating decisions due to alleged conflicts of interest.
The probe into Walter's insurers highlights growing regulatory concerns about the use of policyholders' funds for potentially risky investments linked to owners' other companies and the transparency of private credit markets. Delaware Life, for instance, reclassified its affiliated investments from 3% to approximately 42% after receiving subpoenas, totaling at least $17 billion. This restatement led S&P Global Ratings to revise its outlook on Delaware Life to "negative." Regulators, including the U.S. Treasury and the NAIC, are increasingly focused on the risks associated with private credit, including illiquidity, pricing difficulties, lack of transparency, and potential conflicts of interest.
