A few charts worth discussing
“AI-linked issuance is becoming an increasingly significant source of capital across nearly every funding channel."
Other charts worth pointing out
Historical 10-year yield change during U.S. Federal Reserve cutting cycles
Credit spreads by rating
Investment grade and hyperscaler bond issuance
Tech and AI drive nearly 40% of longer-duration issues
Travel spending by generation
Equal-weighted vs. cap-weighted S&P 500 performance
Megacap Technology/Media/Telecoms – fund ownership
Equity allocation mix
S&P 500 Index Earnings growth estimates
Ratings Firm Accused of Grade Inflation Vouched for $40 Billion of Insurer Debt
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.
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.
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.
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.
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.
In its analysis of a data set of 5,000 private-letter deals rated by Egan-Jones, the Journal also assessed how the firm’s ratings compare with those of peers, drawing on limited publicly available data. The Journal found 52 investments that carried ratings from Egan-Jones and another firm covering the same period. Among those, Egan-Jones’s ratings were on average one notch higher than those of the other raters. In two dozen cases, they were at least three notches higher, the Journal’s analysis shows. Egan-Jones had a lower grade in 18 instances.
Methodology
The Journal assembled and analyzed a data set of nearly 18,200 private-letter rated instruments, drawing on filings made by insurance companies. Egan-Jones issued ratings for more than a quarter of those instruments, based on the Journal’s analysis of disclosures made by six ratings firms. The Journal identified 52 instruments across 79 rating actions where Egan-Jones and at least one other firm maintained an active credit rating.
To measure changes in ratings, the Journal converted letter ratings into numerical designations used by insurance regulators. The Journal only looked at ratings that were in effect during overlapping periods and used discrete, nine-character identifiers—known as Cusip numbers—to identify debt instruments that were rated by both Egan-Jones and a competitor.
Many of the ratings compared by the Journal applied to publicly traded bonds. Egan-Jones said that in many of those cases, it provided unsolicited ratings for its subscribers, using only publicly available information. Egan-Jones said it uses the same methodology whether ratings are private or public, solicited or unsolicited.
This week’s fun finds
From myth to reality. Kris from the Operations Team hosted one of the most anticipated moai’s of the year. He arranged to have infamous focaccia sandwiches delivered from his hometown of Bolton to our Toronto office. They were fresh, flavourful and offered a ton of variety for everyone to enjoy.
Scientists Reveal Why Mosquitoes Bite Some People More Than Others
Ever felt like mosquitoes bite you while ignoring everyone else?
Scientists are now making progress in deciphering the complex chemical cocktail that makes particular people more enticing to these disease-spreading bloodsuckers.
A range of sensory cues can cause mosquitoes to pick one human over another – mainly the smell and heat our bodies give off, and the carbon dioxide we exhale.
Female mosquitoes – which are the only ones that bite – detect these signals with finely-tuned receptors, then choose their target accordingly.
