Moody’s Ratings has called on the National Association of Insurance Commissioners (NAIC) to impose stricter treatment on private credit ratings used by insurers. The ratings giant warns that private credit grades may overstate quality, enabling borrowers to shop for favorable scores within the $807 billion corner of the insurance market. This concern arises because private letter ratings, typically issued for non-public debt by specialized agencies, are used by insurers to justify capital charges on their private credit holdings. Moody's suggests that if borrowers can seek out agencies offering generous ratings, the entire capital framework for insurers could be built on inflated foundations.
US life insurers have invested approximately $807 billion into private credit, which now constitutes about 20% of the sector’s $4 trillion total fixed-income portfolio. For some individual insurers, these private credit holdings can represent as much as one-third of their cash and invested assets. Moody's intervention, while aimed at strengthening regulatory oversight, is also partly self-interested, as it competes with smaller, specialized firms that have gained market share in private credit.
The NAIC has already initiated steps to address these concerns, including rolling out new transparency requirements that mandate insurers submit private rating letter rationale reports within 90 days of any updates. In early 2026, the NAIC restructured its Valuation of Securities Task Force into four separate groups to sharpen oversight of private credit ratings and introduced a new challenge process. This process empowers the NAIC to formally contest private letter ratings that significantly diverge from its own internal assessments. These regulatory changes are part of a broader evolution, including the 2024 Holistic Investment Framework, designed to address systemic risks from insurers’ increasingly aggressive yield-seeking behavior. The immediate impact of stricter NAIC treatment for insurers could be higher capital charges on certain private credit holdings if ratings are downgraded under the new challenge process.
