Results from a recent survey by CRE Financial Council (CREFC) and Trepp about commercial mortgage investment point to robust performance within insurance portfolios. The survey used industry data from January 1 to December 31, 2011 to assess investment performance during the downturn and for overall benchmarking purposes.
"These results provide clear evidence of extremely solid investment performance within insurance company portfolios," said Todd Everett, managing director and head of real estate fixed income at principal real estate investors and chair of CREFC's portfolio lenders insurance company sub-forum. "They also demonstrate the reasons we are seeing increasing allocations in commercial mortgages from this sector. The lowering level of losses and minor levels of high risk seem to indicate that insurance companies are benefitting from the recovery in real estate fundamentals."
Today’s CREFC press release identified the key take-away points from the survey that showed the insurance sector’s positive investment performance.
The survey data demonstrated that the average commercial mortgage holdings of companies that participated in the survey was 11.37% of the total invested assets with a range from a high of 17.81% to a low of 4%.
CREFC also highlighted the total realized losses from the commercial mortgage holdings of the participating companies only reached six basis points, while not one company reported realized losses greater than 1%.
On a similar note, the recorded realized losses were contained chiefly in first mortgage investments at 83.24%. Minor losses were also reported from investment in higher yielding subordinated debt instruments, which was 14.10% of all losses, and construction loans, which were 2.66% of all losses, where considerably lower levels of exposure are held.
In addition, the severity of realized losses for insurance companies averaged to be only 9.19% of the par balance for first mortgage investments. The underlying quality of the real estate in insurance company portfolios helped to mitigate the financial impact of troubled loans.
CREFC broke down the realized losses by property type. They said that the office property type accounted for 31.61% of all realized losses from participating companies, multifamily at 23.43%, retail at 11.04%, industrial at 21.93%, and hotels at 2.34%.
For these four core property types, the survey saw a tremendously tight range of average realized loss severities when a loss was recorded. The severities ranged from a high of 12.87% for multifamily to a low of 8.54% for office. Meanwhile, retail loss severities were recorded at 9.71% and industrial at 12.57%.
In terms of the actions taken on problem loans, for the realized losses that were recorded in the survey, 17.16% were caused by distressed note sales, 15.61% by foreclosures, 21.18% by discounted payoffs, and 31.74% from either write-down(s) or restructures.
CREFC also noted that the total loan delinquencies (30 days or greater) recorded by participating companies within their general account holdings and subsidiary entities averaged at 0.43%.
The next survey that will cover data from the 1Q12 and 2Q12 will be distributed in mid-August and will be available in 4Q12.