Ratings Firm Accused of Grade Inflation Vouched for $40 Billion of Insurer Debt
Egan-Jones says it stands by the integrity and rigor of its ratings, which have been banned by a regulator and are the focus of a lawsuit brought by former employees
- U.S. insurers hold about $40 billion of debt investments rated by Egan-Jones, a firm facing regulatory scrutiny and a lawsuit.
- Two former employees allege Egan-Jones pressured staff to inflate ratings, while the SEC has questioned the firm’s reliability.
- Insurer debt rated confidentially by Egan-Jones fell more than 30% in 2025 as some insurers began seeking a different grader.
U.S. insurers have some $40 billion of debt investments on their books that have been privately graded by Egan-Jones, a firm whose ratings have come under significant scrutiny from regulators, according to a Wall Street Journal analysis of public data.
Egan-Jones Ratings, based in King of Prussia, Pa., is being sued by two former employees who allege that it pressured staff to inflate ratings to gain business. The Securities and Exchange Commission has questioned the company’s reliability, and a regulator in Bermuda, where insurers park a huge amount of capital, has stopped accepting the firm’s ratings.
“Egan-Jones stands behind the integrity, independence, and rigor of its ratings,” the company said in a statement.
Ratings firms play a crucial role in making sure life and annuity insurers don’t take too much risk when investing policyholders’ premiums. That is because the credit rating on each investment generally determines the dollar amount an insurer must set aside to protect against the risk of loss. A better rating means insurers don’t have to set aside as much capital.
Insurers who pick a lenient ratings agency might set themselves up for long-term pain should those deals run into trouble, Piper Sandler insurance analyst Paul Newsome said. “There can be impacts to policyholders if any of the rating agencies do a poor job,” Newsome said.
Life insurers chasing higher returns have splurged on private credit deals in the past decade, leading to a sharp increase in confidential, or “private letter” ratings assigned by firms like Egan Jones that often accompany the investments.
A wave of defaults on often illiquid private-credit assets has brought attention to the potential pitfalls that come with lending to smaller or less-creditworthy businesses, and stoked concern about the ratings assigned to these investments even though they apply to a fraction of the total debt owned by insurers.
Many insurers have debt rated by Egan-Jones on their books, according to the Journal’s analysis, which drew on ratings data disclosed by the firm and investment holdings data from the National Association of Insurance Commissioners.
Among the biggest holders are insurance companies controlled by Mark Walter, the financial titan who owns the Los Angeles Dodgers. Egan-Jones rated about $2.6 billion of loans held by Walter’s insurers, the analysis showed, including debt issued by American Media Productions, a firm controlled by a Walter affiliate that owns the Dodgers’ local TV broadcaster.
Loans tied to Walter’s business empire are at the center of a federal investigation into possible fraud. Egan-Jones said its understanding is that the Walter investigation is focused on disclosures, not ratings. A spokesperson for Walter’s insurers declined to comment.
Other insurers with significant amounts of debt rated by Egan-Jones include Teachers Insurance and Annuity Association of America with $5.5 billion, Mass Mutual with $3.4 billion, Principal with $2 billion, Security Benefit Life with $1.7 billion and Allianz Life with $1.6 billion.
TIAA, Mass Mutual, Principal and Allianz said they do their own risk assessment separate from those conducted by ratings firms. Principal said it tallied its Egan-Jones rated debt slightly differently from the Journal and came up with a total of $1.7 billion. Allianz said that late last year it asked its asset managers to stop working with Egan-Jones and to get a second rating for any Egan-Jones rated debt. Security Benefit didn’t respond to a request for comment.
Insurance companies and the state commissioners who regulate them have long relied on public ratings from Moody’s Ratings or S&P Global to assess risk and determine how much of a financial cushion insurers should hold for each bond they invest in. Those letter-grade credit assessments have historically been limited to public debt. But that changed in the past decade as private credit in life insurer portfolios swelled to an estimated $980 billion, or about a quarter of total holdings, as of 2025, according to an estimate by insurance-company ratings firm AM Best.
Rather than go to insurance regulators for an individual assessment of how much capital to hold for each private investment, insurers and debt issuers began paying for confidential, or private-letter, ratings. Insurers held about $480 billion worth of privately rated debt instruments in 2025, more than 10 times their $47 billion value in 2018, when companies first began disclosing their use, the Journal’s analysis shows. Most were for private debt, but insurers can also seek private-letter ratings on public securities.
Egan-Jones is among the main players in the private-letter ratings business but has lately attracted considerable scrutiny. The lawsuit filed in 2024 by the firm’s two former executives alleged they were fired after telling securities regulators they were concerned about conflicts of interest.
In its statement, Egan-Jones denied the allegations by the former employees and said they were establishing a competing ratings business.
In a September 2023 letter to Egan-Jones, the SEC wrote that the firm’s incentives for analysts could lead to compromised ratings. And in March, the Securities and Exchange Commission questioned Egan-Jones’s capacity to “consistently produce credit ratings with integrity” on asset-backed securities, a type of debt instrument it was seeking permission to rate. An SEC spokesperson declined to comment.
Egan-Jones said the incentives referenced by the agency were part of a work-tracking system commonly used by businesses.
In January, regulators in Bermuda removed Egan-Jones from its list of recognized ratings providers. A study by the National Association of Insurance Commissioners said private-letter ratings from small firms, a group that includes Egan-Jones, were often inflated. The group has pulled the report from its website, saying it needed to clarify its findings.
Some insurers are starting to back away from Egan-Jones and seek a different grader. Insurer debt rated confidentially by Egan-Jones fell more than 30% in 2025, from $58 billion in 2024, a period when total private-letter rated debt grew, according to the Journal analysis.
The general lack of disclosures around private credit have been a concern for investors and lawmakers worried about hidden risks in the industry. Evaluating private-letter ratings is difficult because so few are disclosed, and unlike with big publicly traded bond issues, the investments are frequently rated by only one firm.