Fitch Ratings predicts life insurer realized losses on their commercial mortgage investments for this year should be in line with 2011’s performance. Even if there were to be a double-dip recession, the current low level of delinquencies would push off realized losses for most insurers into next year.
Stabilizing fundamentals and favorable performance so far this year has reduced Fitch’s concerns over potential losses for life company mortgage investments.
The ratings agency noted that performance of these assets in 2011 was better than it had expected. Exposure to troubled mortgages and real estate remains low with respect to total adjusted capital at the life insurers.
While delinquencies have increased so far this, Fitch expects the trend of manageable CRE losses to continue aided by ample liquidity, a low interest rate environment and a moderately recovering economy.
Even though the level of problem loans and properties acquired as real estate owned has grown since 2008, the total still remains well below 1% of total mortgages, at 0.39% at the end of last year.
Mortgages are also giving life companies a better return, at an average of 5.8% in 2011, down 10 basis points from 2010, but still better than the earnings yield from their bond investments.
As a result, Fitch notes new life company investments in mortgages increased 25% to $56 billion in 2011. But competition with CMBS and other lenders kept the net mortgage investment growth for these companies at just 4%.
Speaking of CMBS, this class now just makes up 5% of life company investment portfolios, but impairment has declined and the overall performance stabilized.