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 its Valuation of Securities Task Force in 2026 into four separate groups designed to sharpen oversight of private credit ratings specifically.

A new challenge process empowers the NAIC to formally contest private letter ratings that diverge significantly from its own internal assessments, introduced in early 2026.

These moves fit within a broader regulatory evolution, including the 2024 Holistic Investment Framework that the NAIC adopted to address systemic risks from insurers’ increasingly aggressive yield-seeking behavior.

Why this matters beyond insurance

Moody’s intervention is partly self-interested. As one of the three dominant public rating agencies, it competes with the smaller, specialized firms that have gained market share in private credit.

For insurers, the immediate impact of stricter NAIC treatment could mean higher capital charges on certain private credit holdings if ratings get downgraded under the new challenge process.

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