Journal of Insurance Regulation

Climate Risk in the Commercial Mortgage Portfolios of Life Insurers: A Focus on Sea Level Rise and Flood Risks

Kim, Kyeonghee
Lin, Xiao

First published: 17 January 2024 | https://doi.org/10.52227/26711.2023

Abstract

In this paper, we explore the climate risk exposure of U.S. life insurers' commercial mortgage loan portfolios, focusing on sea level rise (SLR) and flood risks. While vast literature and industry reports document the potential impact of climate change on the insurance industry, most focus on the property insurance market. Life insurers hold a significant number of commercial mortgages, representing approximately 15% of their assets by the end of 2021. These investments are susceptible to both physical and transitional risks of climate change and are much less researched or understood. From 2012 to 2019, we find that the size of newly issued commercial mortgages by life insurers in the U.S. grew from $37 billion to $56 billion (by 51%). We find heterogeneity across life insurers in terms of the average loan size, the loan origination frequency, as well as loan locations. In terms of locations, life insurers tend to originate loans in metropolitan areas, many of which are on the coast. Some life insurers focus on specific geographical areas that happen to be exposed to high levels of SLR or flood risks (e.g., Florida), while some diversify across metropolitan areas (coastal or noncoastal) in the U.S. Our findings have important policy implications for regulators and researchers.

DOI: https://doi.org/10.52227/26711.2023

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