- Key insight: Insurance company borrowing from the Federal Home Loan banks hit a record $177.8 billion last year, a 10% jump from borrowing levels in 2024, which itself was a 13% increase over 2023.
- What's at stake: Insurers are utilizing "spread investing" programs to secure low-cost cash advances from the system and reinvest into higher-yielding investments, including private credit.
- Forward look: The National Association of Insurance Commissioners says state regulators have increased their scrutiny to ensure insurers' capital buffers are adequate.
Insurance company borrowings from the Federal Home Loan banks — including, notably, from subsidiaries of private credit firms — have hit record levels, even as regulators and analysts are increasingly scrutinizing insurers' growing appetite for private credit.
Insurance company borrowings from the Federal Home Loan Bank System reached a high of $177.8 billion last year — a 10% increase over 2024, which itself represented a 13% increase over 2023. Insurers tapped the Home Loan banks for 26% of its total borrowings last year — a disproportionately high figure, considering insurers make up only 7% of the Federal Home Loan banks' membership base.
Last year, Athene Annuity and Life, a unit of Apollo Global Management, was the single largest insurance borrower, having obtained $24 billion in cash advances from the Federal Home Loan Bank of Des Moines. Athene was also the second-largest borrower of the entire Federal Home Loan Bank System, behind only $549 billion-asset Truist Financial, based in Charlotte, N.C.
Athene, based in West Des Moines, Iowa, held $39 billion in collateral against the $24 billion in Federal Home Loan bank advances. When a member pledges collateral, the system takes a discount, or "haircut," to protect against potential declines in the collateral's value. Members can pledge only high-quality liquid assets such as commercial loans, municipal bonds, U.S. Treasuries and mortgage-backed securities to secure a loan or line of credit.
Athene called borrowing from the Federal Home Loan banks a "win-win" situation.
"The FHLB system takes very senior collateral and provides financial institutions with favorable, secured term funding, which incents increased lending activity," Athene said in a statement to American Banker. "This creates a clear win-win. For the U.S., it enhances the reliability and affordability within the housing market. For Athene, it offers a very senior, high-quality asset at a reasonable return."
Last Friday, Athene disclosed
But some critics say the relationship between the Federal Home Loan banks and the growing private credit market represent a diversion of the government-sponsored enterprises from their original mission of directly supporting housing creation.
"The notion that 20% of the money is lent to one entity is a concentration risk," said Courtney Alexander, a senior researcher at the United Food and Commercial Workers International Union.
Athene's borrowings represent a "concentration risk," because the Iowa insurer makes up 21% of total borrowings from the Des Moines Federal Home Loan Bank, she said.
Alexander claims insurers have a tenuous relationship to housing finance and instead are purchasing mortgage-related assets to pledge as collateral to the Federal Home Loan banks in order to invest those advances and boost overall investment returns. Consumer advocates have
"What we have now is arguably nonbank lending from the Federal Home Loan Bank System, which is backed by an implicit guarantee of the federal government," she said. "What [the FHLBs] do now is lend to big financial companies with very, very little actual contribution to housing finance."
Insurers have been members of the Federal Home Loan banks since 1932, when the privately capitalized, quasi-government system was created to support mortgage lending during the Great Depression.
Ryan Donovan, president and CEO of the Council of Federal Home Loan Banks, the system's trade group, said insurers provide a "stabilizing force" when bank borrowing wanes. Insurance companies that are leveraging their balance sheets to support the housing market is precisely what Congress had in mind when it created the Federal Home Loan banks, he said.
"I often scratch my head about the concern about insurance companies in the system, because Congress has determined that they're eligible for Home Loan bank membership to keep mortgages affordable," Donovan said. "Insurance company use of the system isn't quite the inverse of banks', but it does provide some stabilization to the system. In counter-cyclical periods, that stability helps ensure our members remain in a strong financial position."
Jack Rosen, director of insurance at Fitch Ratings, said there are both good and bad actors in the $40 trillion-dollar private credit market. Fitch expects "selective pressure" on insurers that have thin capital buffers and have leaned too heavily on complex, high-yield assets.
"Generally, the quality of [insurer] assets is high. But when insurers hold opaque, less-transparent assets, it's always something we want to double-click on and pay close attention to," Rosen said.
Another private equity firm that has come under
During the Biden administration, the Home Loan Bank System underwent a comprehensive
Sharon Cornelissen, director of housing at the Consumer Federation of America, said the Federal Home Loan banks have been actively recruiting insurers by using the implied government-guarantee on the bonds it issues to maximize insurer's profits. Funding agreements and so-called spread-lending programs allow insurers to capture the "spread" between low-cost borrowings and investment returns.
"When they're talking to insurance companies, they're not talking about housing; they're talking about how they can boost profits by getting cheap loans and investing it in higher-yielding assets and keeping the difference," she said. "This is not what the government intended."
By law, each of the Home Loan banks are required to give 10% of their earnings to affordable housing. Many have voluntarily increased that amount to 15%. The total affordable housing program contribution last year was $683 million, primarily in the form of grants to local nonprofits.
"We're in the middle of a housing crisis and they are really underleveraging the potential of the system in terms of what they could be doing for housing finance and liquidity needs," Cornelissen said.
Lender of "next-to-last resort"
The National Association of Insurance Commissioners created a new review process that went into effect this year that allows regulators to challenge ratings on individual securities. The review process, conducted manually by NAIC analysts, may increase scrutiny of opaque private credit assets held by insurers, particularly those with thin capital buffers, said Fitch's Rosen. Insurers have increasingly sought so-called private letter ratings — essentially private grades from rating agencies — for non-publicly traded securities, which are used to determine the regulatory capital insurers must hold against investments. Some insurers may have to hold more capital if NAIC chooses to challenge and override any ratings, Rosen wrote in
"If the challenge process leads to more conservative classifications, we would expect capital charge increases to emerge first in opaque or subordinated positions rather than in senior, well-documented private credit or securitized exposures with stronger data and structural protections," Rosen said.
The Federal Home Loan Bank System was originally conceived as a lender of "next-to-last resort" providing members with liquidity during periods of stress. During the bank liquidity crisis in early 2023, Silicon Valley Bank, Signature Bank and First Republic Bank all
When a bank fails, the Federal Deposit Insurance Corp. typically pays out insured depositors from its Deposit Insurance Fund, or DIF. The FDIC often seeks a quick resolution, usually over a weekend because depositors can grab their cash quickly — to prevent runs on a bank. The DIF is funded by assessments on all FDIC-insured banks.
In the past 25 years, there have been roughly 500 bank failures, compared with only a handful of insurance company failures that are also Federal Home Loan bank members over the same period. Receivership (or conservatorship) of an insolvent insurance company is a long process that can drag out for several years. State insurance regulators typically do not shut an insurer down quickly, but rather seek to preserve contracts and protect policyholders. Because life insurers tend to hold long-term liabilities like annuities, selling them could incur losses.
"Almost every state has a resolution fund in the event of an insurance company failure that is designed to protect policy holders," said Donovan.
The
Cornelissen said she has high hopes that the Federal Home Loan banks will focus more on affordable housing after President Trump issued an
"They could be directing billions to housing, but they're not doing that," Cornelissen said. "We should demand that the administration leverage the system to really make an impact on housing. Even this administration seems to recognize its potential. We shouldn't be OK with the scraps."
