Kroll Bond Rating Agency has disputed academic findings that private-credit ratings used by US life insurers understate investment risk, arguing the research overstates both the risks involved and the potential industry impact, according to The Royal Gazette.
A Columbia Business School working paper found that privately rated bonds were more likely to experience credit impairments than equivalently rated public bonds. Researchers estimated US life insurers would need to hold about $4.5 billion in additional capital if those ratings matched observed asset performance.
KBRA released a research note this week acknowledging the study raised "important questions" about private ratings in insurer portfolios, while disputing whether the impacts were as serious or far-reaching as the paper claimed.
"Our objective is not to argue that private ratings should be exempt from scrutiny," KBRA said. "Rather, it is to help fixed-income investors evaluate whether the evidence presented in the paper supports the breadth of its conclusions - which, we believe, they do not."
The agency said the study relied on accounting impairment measures rather than traditional metrics such as defaults or expected-loss analyses, and that the researchers inferred rating inflation rather than directly measuring it. On the capital figure, KBRA noted the paper's own modelling was more modest than the headline suggested. "Even accepting those assumptions, the paper's own illustrative exercise produces a modelled industry capital adjustment of approximately $4 billion," the agency said.
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That pushback comes as default rates in private credit are rising. Fitch Ratings reported that the US private credit default rate reached a record 6.0% in April 2026. Barclays found that private credit holdings among US life insurers grew by more than 20% in 2025 to about 10% of total assets.
Moody's separately identified growing exposure. Private and illiquid bond holdings at US life insurers grew from $685 billion at year-end 2024 to $807 billion at year-end 2025 - a $122 billion increase in a single year that prompted the agency to flag concentration risk and a widening credit quality gap.
Private credit has become a key asset class for life re/insurers, with numerous groups operating in Bermuda among those invested in the sector. Many have put capital into the $2 trillion direct lending market, funded by non-bank institutions that lend to businesses.
From January 2026, the National Association of Insurance Commissioners gained authority to challenge private credit ratings, with the power to override ratings that differ from its own analysis by more than three notches for capital purposes - a significant shift in the balance between regulatory and agency authority over insurer balance sheets.
The scrutiny extends to Bermuda. The US Treasury has joined oversight of the $1.52 trillion Bermuda reinsurance market, and the Bermuda Monetary Authority has flagged liquidity risk management as a 2026 supervisory priority.
The broader question of how private-credit assets are rated and how much capital insurers should hold against them remains unresolved. With default rates at record levels and regulatory oversight tightening on both sides of the Atlantic, the debate the Columbia paper has reignited is unlikely to be settled by a single agency response.
