Insurers monitor shocks to collateral: micro evidence from mortgage‑backed securities

Thiemo Fetzer (), Benjamin Guin (), Felipe Netto () and Farzad Saidi ()
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Thiemo Fetzer: University of Warwick, University of Bonn and Centre for Economic Policy Research
Benjamin Guin: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
Felipe Netto: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
Farzad Saidi: University of Bonn and Centre for Economic Policy Research

No 1119, Bank of England working papers from Bank of England

Abstract: This paper examines how insurance companies monitor and react to cash‑flow shocks in commercial mortgage‑backed securities (CMBS). Using detailed micro data around the onset of the Covid pandemic, we show that lease expiration predicts commercial real estate mortgage delinquency, particularly for offices due to lower demand. Insurers monitor these risks and sell more exposed CMBS – mirrored by a surge in small banks holding CMBS. This monitoring effort also affects insurers’ trading in other assets, indicating limited risk assessment capacity. Our findings reveal that institutional investors actively monitor underlying asset risk and can even gain informational advantages over some banks.

Keywords: Insurance sector; risk management; mortgage default; commercial real estate; CMBS; work from home (search for similar items in EconPapers)
JEL-codes: G20 G21 G22 G23 (search for similar items in EconPapers)
Pages: 69 pages
Date: 2025-02-21
New Economics Papers: this item is included in nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:1119

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