OLDWICK, N.J.--(BUSINESS WIRE)--In this episode of AMBestTV, Jason Hopper, associate director, research and analytics, AM Best Rating Services, said insurers may turn to loans from the Federal Home Loan Bank (FHLB) to bolster liquidity as the COVID-19-led economic turmoil grows. Click on http://www.ambest.com/v.asp?v=fhlb520 to view the entire program.
Hopper highlighted what are some of the dynamics behind borrowing from FHLB, and how widespread is FHLB access.
“Not just anyone is able to borrow from FHLB,” said Hopper. “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 property/casualty 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.”
To access the related Best’s Special Report, titled, “Potential Rise in Demand for FHLB Borrowing Capacity,” please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=296354.
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