The U.S. insurance industry’s exposure to securities issued by Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs) that aid liquidity in the mortgage market, is substantial for a handful of companies. Nevertheless, A.M. Best Co. does not foresee substantial write-downs, as much of the industry’s exposure represents fixed-income securities, which should benefit from the added financial backing of the federal government.
Concerns over the capital positions of the two GSEs led in late July to a broad housing package in Congress. The law provides the Treasury Secretary with temporary authority to buy an unlimited amount of GSE obligations and securities through 2009.
The A.M. Best Special Report, “Exposure to Fannie Mae/Freddie Mac Sizeable but Currently Manageable,” concluded the following:
– The U.S. insurance industry’s investments in securities issued by Fannie Mae and Freddie Mac totaled about $371 billion as of year-end 2007, according to A.M. Best’s Schedule D product.
– Investments in fixed-income securities at $366.4 billion represented the industry’s primary exposure to the two GSEs, though $4.0 billion was invested in preferred stock and only $265 million in common stock.
– The U.S. property/casualty (P/C) industry’s total exposure to securities issued by the two GSEs represented 23 percent of year-end 2007 policyholder surplus.
– The P/C industry’s exposure totaled about $115.5 billion as of year-end 2007, with $112.4 billion invested in fixed-income securities, $2.9 billion in preferred stock and $223.4 million in common stock.
– The U.S. life/health industry’s total exposure to securities issued by the two GSEs represented about 75 percent of year-end 2007 capital and surplus.
– The life/health industry’s exposure totaled about $255 billion as of year-end 2007, most of which — $254 billion — was invested in fixed-income securities issued by the two GSEs.
Source: A.M. Best, www.ambest.com
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