Kroll Bond Rating Agency (KBRA) has challenged the conclusions of a recent Columbia Business School paper that raised concerns about the growing use of private ratings in US life insurers’ portfolios, arguing that the study overstates both the scale of the issue and its implications for regulatory capital adequacy.
In a research note published on 9 June, titled ‘Private Credit: Much Ado About Nothing – Perspectives on Columbia Business School Paper About Private Ratings’, KBRA said the academic paper’s headline findings regarding rating inflation, market discipline and insurer undercapitalisation rely on a series of assumptions that extend beyond the evidence directly observed in the data.
The Columbia paper, ‘Rating Without Market Discipline’, examined the rapid growth of privately rated bonds held by US life insurers and concluded that private ratings tend to understate credit risk relative to public ratings. The authors found that privately rated bonds experienced higher subsequent impairment rates and generated lower regulatory capital requirements than similarly designated publicly rated securities.
While acknowledging that the study raises legitimate questions about transparency and risk measurement in private credit markets, KBRA argued that the paper’s broader policy conclusions are disproportionate to its own quantitative findings.
“Even if one accepts the entirety of the paper’s analytical assumptions and inferential steps as valid,” KBRA wrote, “the authors’ own illustrative capital exercise implies approximately $4bn of additional required capital for the entire US life insurance industry.”
According to KBRA, that figure represents roughly 0.5% of industry total adjusted capital, 0.6% of industry surplus and less than 0.1% of invested assets. The agency estimated the impact would equate to a reduction in the industry’s aggregate risk-based capital ratio from 868% to approximately 830%.
The rating agency also questioned several aspects of the Columbia study’s methodology, including its reliance on other-than-temporary impairment (OTTI) rates as a proxy for rating performance.
KBRA argued that impairment events are accounting measures rather than direct indicators of rating accuracy, default risk or expected loss. The note further highlighted that the study treats all impairment events equally regardless of severity, potentially obscuring the economic significance of any observed differences.
Among seven methodological concerns identified by KBRA, the agency also pointed to what it described as an inferred rather than directly observed measure of rating inflation, a capital estimate based on broad extrapolation, and conclusions regarding rating agency analytical capacity that were not directly supported by the underlying data.
A particular focus of the critique is the Columbia paper’s estimate of capital shortfalls. KBRA said the study derives its headline figure by translating differences in impairment outcomes into an implied two-notch rating adjustment and then applying that downgrade assumption across the entire privately rated universe.
“The capital estimate should be read as a modelled sensitivity, not as an observed shortfall,” the agency said, noting that the strongest evidence cited in the Columbia paper is concentrated in speculative-grade securities, which account for only a small portion of the overall private letter rating market.
KBRA also compared the paper’s methodology with recent stress-testing exercises conducted by other market participants, including Fitch Ratings, which has modelled one-, two- and three-notch downgrade scenarios for private letter ratings while describing such outcomes as “extremely severe” and of “remote probability”.
The debate comes amid heightened regulatory scrutiny of private credit markets as insurers continue to increase allocations to privately originated assets. Columbia’s research documented private ratings growing from $46 billion in 2018 to $481 billion in 2025, rising from 1.5% to 12.2% of insurer bond portfolios.
Despite its criticism, KBRA stopped short of dismissing the paper entirely, acknowledging that it contributes to the discussion around private-market transparency and regulatory oversight.
However, the agency concluded that the study’s strongest evidence points to “pockets of regulatory sensitivity” rather than systemic undercapitalisation across the life insurance sector.
“The growth of private markets raises legitimate questions,” KBRA said, “but the broader conclusions regarding widespread rating inflation, market discipline and capital adequacy depend on assumptions that extend materially beyond the directly observed evidence.”
