U.S. life/annuity insurers’ borrowings from the Federal Home Loan Banks (FHLBs) slowed in 2025, but still grew by 10% year over year, driven predominantly by funding agreements, according to a new AM Best report.
The FHLBs are a system of 11 regionally based government-sponsored banks providing liquidity to financial institutions to promote housing and community initiatives. Insurers can gain access to the FHLB if they engage in mortgage lending and purchase FHLB stock and must post collateral to receive advances. The Best’s Special Report, “Funding Agreements Drive FHLB Borrowings for the L/A Industry in 2025,” states that borrowings in the form of funding agreements totaled $153 billion in 2025, compared with $136 billion in the previous year, as annuity writers have been able to leverage the lower cost of borrowing from the FHLBs and gain a favorable spread on investments. Although the FHLBs provide an inexpensive short-term financing option potentially used to increase investment income, an insurer may be exposed to credit risk, collateral risk and market risk.
According to the report, borrowing capacity grew at a faster rate than borrowings in 2025, increasing by 18%, again heavily driven by annuity writers. “Borrowing capacity is still broadly available, although it is somewhat more limited than in 2019, before the more recent annuity sales boom amid private capital heavily entering the life/annuity industry,” said Jason Hopper, associate director, Industry Research and Analytics. “Two-thirds of companies used less than half its available capacity in 2025, which is up from 62% in 2019; however, a notably higher share of companies have outstanding borrowings today as compared with 2019.”
Other takeaways in the report include:
- Favorable crediting rates have led to a surge in deposit-type contracts by insurers, including guaranteed investment contracts (GICs). While the amount of FHLB funding agreements reported as GICs and as premium or other deposit funds rose notably over the last two years, the share of the total balance has hovered steadily around 22% for the industry in aggregate.
- Since FHLB funding agreement borrowers are predominantly companies that sell annuities and spread-play business, the investment profile of these borrowers closely mirrors that of the individual annuity composite in asset classes such as private placements and affiliated and high-risk investments, as well as bond yields.
To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=365709.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
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