The rating agencies are not just under fire from regulators and lawsuits, but also threatened by new competitors from outside the traditional ratings roles.

WSJ: Under the proposal being considered, the NAIC (National Association of Insurance Commissioners) would arrange the contract and work with the analytical firm. Any firm large enough to handle the job could seek it, with insurers paying fees to the NAIC to cover the cost. The proposal, expected to pass, comes from trade group American Council of Life Insurers.

But the alternatives are not without controversy, and it's unclear whether these other firms come with their own string of conflicts. One of the firms considered for the job for example is BlackRock, which is raising eyebrows across the blogosphere:

Reuters: It's amazing how well the company has positioned itself to clean up the mess left behind by the financial crisis. It already has chummy ties with the government, including the Federal Reserve which tapped it to manage and eventually liquidate toxic assets the central bank took on from AIG. It's also the risk and analytics manager in chief for the Fed's MBS purchasing program.

NAIC of course is considering other firms:

WSJ: In addition to BlackRock, the insurance regulators also recently have talked to Pimco Advisory, part of Newport Beach, Calif., bond-powerhouse Pacific Investment Management Co., a unit of Allianz SE; Promontory Financial Group, a Washington, D.C., firm founded and headed by Eugene Ludwig, a former U.S. comptroller of the currency; and Andrew Davidson & Co., a 17-year-old New York firm that also has a specialty in evaluating complex structured securities, according to the regulators.

Pimco is plugged into various government programs to such an extent that they were advised to keep away from PPIP (as they promptly did) to avoid any perception of conflicts. Allianz is itself an insurance firm, making it unclear how effective they would be advising their competitors on potential investments. Promontory Financial Group may have political ties given their founder. Andrew Davidson & Co is a financial analytics firm that in fact developed the models many firms used to value RMBS and CDO products before the crisis. It's not clear how this expertise would qualify them to evaluate credit worthiness of securities purchased by insurance firms going forward.

These are just some of the challenges faced by the investment community as they try to shift away from reliance on the rating agencies. But the shift is definitely under way.