Template-Type: ReDIF-Paper 1.0
Title: Insurers Monitor Shocks to Collateral: Micro Evidence from Mortgage-backed Securities
Author-Name: Thiemo Fetzer
Author-Email:
Author-Name: Benjamin Guin
Author-Email: 
Author-Name: Felipe Netto
Author-Email: 
Author-Name: Farzad Saidi
Author-Email: 

Classification-JEL: G20, G21, G22, G23
Keywords: Insurance Sector, Risk Management, Mortgage Default, Commercial Real Estate, CMBS, Workfrom-home

Abstract: This paper uncovers if and how insurance companies react to shocks to collateral in
their portfolio of securitized assets. We address this question in the context of commercial
real estate cash flow shocks, which are informationally opaque to holders of commercial
mortgage-backed securities (CMBS). Using detailed micro data, we show that cash flow
shocks during the COVID-19 pandemic predict CRE mortgage delinquency, especially
those stemming from lease expiration of offices, reflecting lower demand for these properties.
Insurers react to such cash flow shocks by selling more exposed CMBS - mirrored
by a surge in small banks holding CMBS - and the composition of their CMBS portfolio
affects their trading behavior in other assets. Our results indicate that institutional investors
actively monitor underlying asset risk, and even gain an informational advantage
over some banks.

Note: 
Length: 71
Creation-Date: 2024-09
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp590
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2024_590