Egan-Jones Ratings, the credit ratings firm accused by former employees of grade inflation, won't be able to add asset-backed securities to its ratings portfolio after the Securities and Exchange Commission on Wednesday rejected its application to do so.

The firm still has permission from the SEC to rate other types of debt, including private credit, and remains a major provider of confidential "private letter ratings" to life and annuity insurers. A Wall Street Journal analysis recently found that about $40 billion in insurer investments carries ratings from the firm.

In a statement provided to the Journal, Egan-Jones said "we sought the two additional licenses at the request of clients and expect to be able to address any concerns and look forward to serving the market."

The SEC said it found inaccuracies in Egan-Jones's application to rate asset-backed securities, a type of structured investment increasingly favored by insurers. As part of Egan-Jones's application, two large investors attested that they had been relying on the firm's ratings of asset-backed securities for three years, the SEC said, but Egan-Jones was not issuing asset-backed security ratings during the full three-year periods those investors cited.