US insurers’ privately rated securities nearly triple in five years

Written by Adam Cadle

17/05/2024

The number of privately rated securities reported by US insurance companies totalled 8,152 at year-end 2023, a 20% increase from 6,792 in 2022, and is on pace to triple the count of 2,850 in 2019 by the end of 2024, the NAIC has revealed.

Small credit rating providers (CRPs), such as Egan Jones, the Kroll Bond Rating Agency, LLC (KBRA), and Morningstar DBRS, are providing an increasing share of private letter ratings (PLRs), accounting for almost 86% of US insurers’ privately rated securities as of year-end 2023.

NAIC designations based on PLRs averaged 2.74 notches higher than designations assigned by the NAIC Securities Valuation Office (SVO), according to data from 2023, with designations three notches higher at small CRPs and 1.9 notches higher at large CRPs.

In 2023, 109 securities moved to a PLR from an SVO designation, with 97% receiving a higher rating. Based on the credit rating analysis conducted by the SVO, the use of PLRs can result in lower risk-based capital (RBC) charges and potentially lead to the undercapitalisation of insurance companies.

Ten US insurer groups accounted for 51% of the industry’s exposure to privately rated securities at year-end 2023, with the majority being large life insurance companies.

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