BIS flags risk of inflated private loan credit ratings

LEE HARRIS AND EUAN HEALY — LONDON · 28 Oct 2025

Credit ratings on private loans held by US insurers may have been systematically inflated, the Bank for International Settlements has warned in a new paper on the growing risk of “fire sales” during periods of financial turmoil.

Ratings on private credit investments have come under scrutiny following a rise in insolvencies and recent highprofile bankruptcies at car parts maker First Brands and auto lender Tricolor.

The rapid collapse of the two businesses has rattled credit markets with some investors highlighting concerns over their complex funding structures.

Smaller rating agencies have captured market share in the fast-growing world of private credit by providing so-called private letter ratings, which are typically only visible to an issuer and select investors. US life insurers have been among the biggest buyers of such debt.

The number of insurance securities rated by Moody’s, S&P and Fitch, the big rating agencies, has been largely flat in recent years while the quantity rated by smaller providers has grown rapidly.

Smaller groups may face commercial pressure to assign more favourable scores, according to the BIS, which said the strategy could “lead to inflated assessments of creditworthiness” and “obscure the true risk of complex assets”.

Insurers with links to private equity groups have been heavy users of private letter ratings. About a quarter of those insurers’ investments relied on such ratings as of 2024, the BIS said.

The lack of transparency and liquidity of private loans makes them tricky to value accurately, increasing the risk of “fire sales which can amplify price movements during periods of economic stress”, the BIS added.

The BIS, which advises the world’s central banks, is the latest body to raise concerns over private credit ratings.

Bank of England governor Andrew Bailey last week warned recent troubles in the sector had set off “alarm bells”.

The National Association of Insurance Commissioners, a standard-setting body for US insurance regulators, this year published a report finding that designations based on private ratings were on average 2.7 notches higher than its own assessments of creditworthiness.

Ratings from small providers were on average 3 notches higher, it said, while those by larger groups were 1.9 notches higher.

The NAIC report, which prompted fears that insurers could be shopping for more lenient ratings, was subsequently removed from the NAIC’s website.

Critics have also argued that private ratings are inherently less robust since they are not subjected to scrutiny by market participants.

Ann Rutledge, a former senior Moody’s analyst and now chief executive of rating agency CreditSpectrum, said: “For the market to establish whether the ratings are reliable, they need to actually have access to the ratings.”