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KBRA Releases Research – Private Credit: A More Balanced Review of the NAIC PLR Review Process for Insurance Balance Sheets

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KBRA releases research on the National Association of Insurance Commissioners (NAIC) private letter ratings (PLR) review process. In August 2024, the NAIC passed an amendment that granted the Securities Valuation Office (SVO) the ability to review and challenge credit ratings that it does not believe are a reasonable measure of risk for regulatory purposes (the Discretion Amendment). Although the Discretion Amendment’s original January 2026 implementation has been delayed, it has focused attention on PLRs, the regulatory treatment of rated private assets, and the potential implications for U.S. life insurers’ risk-based capital (RBC) positions. KBRA views the potential impact of the Discretion Amendment through a measured analytical lens that considers the likely scope of reviews, the security-specific nature of potential outcomes, the distinction between required capital and statutory capital impairment, and the broader capital management tools available to insurers.

Key Takeaways

  • PLRs are not synonymous with private credit. While private credit represents an important part of the PLR market, PLRs may be associated with a range of asset types and transaction structures. The potential regulatory capital impact of a PLR review therefore depends on the specific security, its structure, collateral, rating level, and resulting NAIC designation.

  • Potential capital effects are likely to be security specific. KBRA expects the PLR review process to focus on individual securities or groups of securities with identified analytical or regulatory concerns. As a result, any RBC impact would likely depend on the size, rating category, NAIC designation, and insurer-level concentration of the affected holdings.

  • RBC sensitivity should be distinguished from economic loss. A change in statutory bond risk charges may increase authorized control level RBC (ACL), thereby lowering an RBC ratio if total adjusted capital (TAC) is unchanged. That outcome is different from a realized credit loss, impairment, or reduction in statutory surplus.

  • Company-level analysis should incorporate more than statutory RBC metrics. Insurer financial strength also depends on, among other things, asset-liability management, investment governance, earnings capacity, reinsurance arrangements, enterprise capital resources, and potential management actions.

  • For all credit ratings, whether published or unpublished, KBRA applies the same analytical approach, methodologies, rating scales, and controls through uniform rating committee processes and surveillance practices (see Unpublished Ratings: Same Standards, Different Distribution). The only distinction is in how the rating and associated reports are disseminated: For public ratings, this is accomplished through the KBRA website, while private ratings are distributed to the engaging entity through a virtual data room. KBRA publishes an annual Global Rating Stability and Transition Study, incorporating both published and private credit ratings, which indicates stability across the ratings universe. Other KBRA research has highlighted consistent performance for published and unpublished ratings (see Private Credit SF: How KBRA Ratings Stack Up).

Click here to view the report.

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About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

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