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

Author

Listed:
  • Fetzer, Thiemo

    (University of Warwick, University of Bonn and Centre for Economic Policy Research)

  • Guin, Benjamin

    (Bank of England)

  • Netto, Felipe

    (Bank of England)

  • Saidi, Farzad

    (University of Bonn and Centre for Economic Policy Research)

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.

Suggested Citation

  • Fetzer, Thiemo & Guin, Benjamin & Netto, Felipe & Saidi, Farzad, 2025. "Insurers monitor shocks to collateral: micro evidence from mortgage‑backed securities," Bank of England working papers 1119, Bank of England.
    • Handle: RePEc:boe:boeewp:1119
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    File URL: https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2025/insurers-monitor-shocks-to-collateral-micro-evidence-from-mortgage-backed-securities.pdf
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    More about this item

    Keywords

    Insurance sector; risk management; mortgage default; commercial real estate; CMBS; work from home;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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