Insurance companies continued to boost their allocations to commercial real estate in 2016, albeit at a slower rate than in 2015.
A survey of 27 insurance companies conducted jointly by the Commercial Real Estate Finance Council and Trepp indicates that participants allocated 11.2% of total invested assets to commercial mortgages, on average, for a $227 billion in exposure.
That’s an increase of 12 basis points from the end of 2015.
Holdings ranged from a high of 18.29% to a low of 2.88%; the low value of 2.88% was reported by one of the newer participating firms.
Survey participants added a combined $41 billion of new mortgages in 2016, a $3.5 billion decrease over the prior year.
Still, the vast majority (90%) of new originations were classified as "new business/financing," a category that includes refinancing of maturing loans from other lenders, including banks and commercial mortgage bond conduits.
That’s roughly the same percentage as in 2015.
In 2016, new originations appeared evenly distributed across property types. Office and multifamily sectors comprised 31% and 23% of the total dollar volume, respectively, up from 26% and 24% in 2015. Retail and industrial loans each represented about 20% of total originations.
The weighted average loan-to-value ratio reported for the new originations improved slightly in 2016, to 56%. However, the weighted average debt service coverage ratio dropped, to 2.12x.
Insurers continue to experience lower losses on commercial mortgages than banks or CMBS. Realized net losses in the general accounts and subsidiary entities of survey participants totaled 0.003% as of the fourth quarter of 2016, which was a slight drop from a year earlier, when losses totaled 0.01%. In contrast, CMBS and commercial banks experienced losses of 0.81% (almost unchanged from a year ago) and 0.01% (down 4 basis points from a year ago), respectively, as of year-end 2016.