US insurers may turn to FHLB loans

Written by Adam Cadle

04/05/2020

US insurers may turn to loans from the Federal Home Loan Bank (FHLB) to bolster liquidity as the COVID-19-led economic turmoil grows.

AM Best Rating Services associate director, research and analytics, Jason Hopper said: “Not just anyone is able to borrow from FHLB. Companies must own capital stock to be able to access borrowing funds. Capacity is determined by a mix of collateral and assets.

“FHLB access is not substantially widespread throughout the industry, as only 22% of life insurers, 6% of P&C insurers and 3% of health insurers actually have access to FHLB borrowing.”

Hopper added that each segment traditionally has accessed FHLB funds for different reasons, and explained how those strategies have started to shift.

“Historically, life insurers have been using FHLB borrowings as more of a spread play, where they borrow funds at a relatively low rate, invest those funds at higher rates and make money off that spread. However, in the more recent borrowings, life insurers have been using it more for liquidity trades, similar to what the property/casualty and the health companies have done.”

Related Articles