European regulator the European Securities and Markets Authority (ESMA) is stepping up scrutiny of the use of private credit ratings, particularly among insurance investors allocating to less liquid private markets, according to a report by the Wall Street Journal.
ESMA has launched a consultation seeking feedback on the purpose, usage and risks associated with restricted-access and private credit ratings. The review focuses on how such ratings are applied in practice and how they compare with publicly available ratings used in traditional bond markets.
Private ratings – typically shared only with issuers and select investors – have become more widely used as life insurers increase allocations to private credit and other illiquid assets. These assessments are often relied upon by insurers to support internal risk frameworks and regulatory capital calculations.
The consultation comes amid broader international attention on the topic. In the US, a 2024 report by the National Association of Insurance Commissioners suggested that privately assigned ratings may, in some cases, be more favourable than equivalent public ratings, although the study was subsequently withdrawn from publication pending further clarification.
Regulators in the US are also examining the issue more closely, with the Treasury Department engaging state insurance authorities over rising exposure to private lending within insurers’ portfolios.
