Moody’s urges tougher NAIC treatment for private credit ratings

Moody’s Ratings has called on the National Association of Insurance Commissioners to impose stricter treatment on private credit ratings used by insurers, arguing that the current system allows borrowers to effectively shop around for the most flattering grade. An $807 billion blind spot US life insurers have piled roughly $807 billion into private credit, which now accounts for about 20% of the sector’s $4 trillion total fixed-income portfolio. For some individual insurers, private credit holdings may represent as much as one-third of their cash and invested assets. Private letter ratings, typically issued for non-public debt by specialized or niche rating agencies, have become the standard way insurers justify the capital charges on these holdings. Moody’s concern is straightforward: if borrowers can seek out the agency most likely to hand them a generous rating, the entire capital framework for insurers starts resting on inflated foundations. NAIC’s regulatory response The NAIC has already begun rolling out new transparency requirements, mandating that insurers submit private rating letter rationale reports within 90 days of any updates to those ratings. The NAIC restructured it...