KBRA Argues for a 'More Balanced' View of the NAIC's Private Letter Rating Review, Saying Capital Impact Is Not the Same as Credit Loss

A credit rating agency has asked for calm in a debate about how US insurance regulators should treat privately rated bonds. On June 8, 2026, KBRA published research titled "Private Credit: A More Balanced Review of the NAIC PLR Review Process for Insurance Balance Sheets." The research responds to concern about the National Association of Insurance Commissioners' power to challenge credit ratings on private assets held by life insurers. This article summarises KBRA's release and adds background from earlier coverage. An earlier version of this article attributed the NAIC's challenge power to a threshold of notches and discussed the amendment as already operating. KBRA's release says the original January 2026 implementation has been delayed, so the article now reflects that. Because KBRA is a rating agency that issues private ratings, its views should be read as those of an interested party.

What is the background? According to KBRA, in August 2024 the NAIC adopted an amendment, called the Discretion Amendment, that lets its Securities Valuation Office (SVO) review and challenge credit ratings it does not consider a reasonable measure of risk for regulatory purposes. The amendment has focused attention on private letter ratings, or PLRs: ratings that a rating agency provides to an investor or issuer privately, without publishing them. They matter because insurers often use them to determine regulatory capital requirements. If the SVO decides that a rating is too generous, the insurer may have to hold more capital against the bond.

Why has this become controversial? Earlier reporting by FI Desk described a 2024 paper from the NAIC's Capital Markets Bureau, later withdrawn by the NAIC, which found that in 2023 nearly all of the 109 securities that moved to PLRs received higher ratings than the SVO assigned, by an average of 2.74 notches. The paper reported that smaller rating providers averaged a 3.01-notch gap, against 1.9 for larger ones. FI Desk also reported that PLR use by US insurers rose 86% between 2019 and 2023. The withdrawal of the paper, and the argument between rating agencies that followed, show how contested the evidence is. KBRA's release does not repeat these figures. It makes a different argument.

What does KBRA argue? First, PLRs are not the same as private credit. They span a range of asset types and transaction structures, so the effect of an SVO review on capital depends on the particular security, its structure, collateral, rating level and NAIC designation. Second, the capital effects are likely to be security-specific, depending on the size, rating category, NAIC designation and insurer-level concentration of affected holdings. Third, sensitivity of risk-based capital (RBC) is not the same as economic loss. KBRA explains that higher statutory bond charges can increase authorised control level RBC and lower the RBC ratio if total adjusted capital is unchanged, but that this is not a realised credit loss, an impairment or a reduction in statutory surplus. Fourth, an insurer's financial strength depends on more than statutory RBC metrics. KBRA cites asset-liability management, investment governance, earnings capacity, reinsurance, enterprise capital resources and potential management actions.

What does KBRA say about its own ratings? The agency says it applies the same methodologies, rating scales and committee processes to published and unpublished ratings. The only difference, it says, is distribution: public ratings appear on KBRA's website, while private ratings go to the engaging entity through a virtual data room. It points to its annual Global Rating Stability and Transition Study, covering 2011 to 2025 and including both published and private ratings, as indicating stability, and to a separate study, "Private Credit SF: How KBRA Ratings Stack Up," as reporting consistent performance for both types. The release contains no figures on RBC, capital or the market, and it does not name its author. Readers cannot verify KBRA's performance claims from the release alone.

How does this fit with other analysis? Moody's, in a report covered elsewhere on this site, says US life insurers' private and illiquid bonds reached $807 billion at the end of 2025, and that 91% carry an investment-grade-equivalent designation. Moody's also warns that impairment rates in private credit could exceed those of liquid holdings in a downside scenario. KBRA and Moody's are therefore not in direct conflict: one argues that the regulatory process should be judged carefully, while the other flags risks in the assets. Both agree that the details matter.

What should readers take from this? The debate is about method and evidence, and the final design of the NAIC process has not been completed in the sources reviewed. A higher capital charge on a bond reduces an insurer's flexibility, but it does not by itself mean that the bond will default. Conversely, a capital rule that is too lenient could allow insurers to hold less capital than their risks justify. Policyholders cannot judge this alone; they can look at an insurer's financial strength ratings from several agencies and at its disclosures. This article reports a published research release and is not investment advice.