Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/303067 
Year of Publication: 
2024
Series/Report no.: 
ECONtribute Discussion Paper No. 334
Publisher: 
University of Bonn and University of Cologne, Reinhard Selten Institute (RSI), Bonn and Cologne
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.
Subjects: 
Insurance Sector
Risk Management
Mortgage Default
Commercial Real Estate
CMBS
Work-from-home
JEL: 
G20
G21
G22
G23
Document Type: 
Working Paper

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