2016, Long-Term Asset Management, Nathan Foley-Fisher, "Securities Lending as Wholesale..."

U.S. life insurers’ securities lending programs are significantly driven by maturity mismatch, where insurers lend bonds for short-term cash collateral but reinvest those funds into long-term assets. This bank-like activity creates systemic vulnerability, as evidenced by the liquidity crisis during the 2008 financial collapse. Empirical analysis of post-2011 regulatory data reveals that a one standard deviation increase in maturity mismatch raises the probability of a bond being lent by 11 percentage points. By utilizing annual changes in unrealized portfolio losses as an instrumental variable, the research establishes a causal link between these investment strategies and lending behavior. These findings highlight the necessity of monitoring maturity mismatch and short-term cash reinvestment as critical financial stability metrics, particularly as low interest rates continue to incentivize insurers to seek alternative returns through securities lending.