U.S. Insurers’ Exposure to Fannie Mae/Freddie Mac Deemed Manageable

The U.S. insurance industry’s exposure to securities issued by Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs), 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 added financial backing of the 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 authority to buy an unlimited amount of GSE obligations and securities through 2009.

A.M. Best 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.
• Investments in fixed-income securities at $366.4 billion represented the industry’s primary exposure to the two GSEs; $4.0 billion was invested in preferred stock and only $265 million in common stock.
• The U.S. property/casualty 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 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 represented about 75 percent of year-end 2007 capital and surplus. The exposure totaled about $255 billion year-end 2007, but $254 billion was invested in fixed-income securities issued by the two GSEs.