Private Credit Risks ‘Inflated’ Ratings by Small Firms, BIS Says

Private credit grades used by insurance companies tend to be concentrated among smaller ratings firms, raising the risk of “inflated assessments of creditworthiness,” the Bank for International Settlements said.

Insurers typically seek out higher ratings because of their lower capital requirements, while smaller agencies “may face commercial incentives” to provide better grades, the BIS said in a report published Monday about systemic risks and policy challenges in the life insurance industry.