Insurers in the US are investing trillions in commercial mortgage debt
Investments in commercial mortgage loans have become a significant portion of the US life/annuity (L/A) industry’s overall investments, a recent AM Best report revealed.
The L/A industry’s investment in mortgage loans grew to approximately $500 billion at the end of 2017 from $350 billion in 2012, according to the report. The L/A industry currently holds nearly 15% of the $3.14 trillion commercial mortgage debt in the US.
The report, titled “Mortgage Loans Remain an Attractive Investment for Insurers,” also revealed that growth rates of around 8.5% in each of the last three years have driven mortgages as a proportion of the segment’s total invested assets from 9.8% in 2011 to 11.8% in 2017, which is the largest allocation since 2000. The overall performance of the L/A industry’s mortgage loan holdings remained solid, with less than 1% consistently labeled as problem loans.
Insurers have focused on apartment buildings, with investment climbing by an average 15% annually over the last four years – accounting for more than 22% of insurers’ mortgage portfolios. On the other hand, offices, which constitute the biggest share of insurer-held mortgage loans, declined in allocation to 26.8% in 2017 from over 29% in 2013. Retail mortgages also fell from 24.3% in 2013 to 21.7% in 2017 due to the effect of negative headlines and perceptions, the report said. On the flip side, the proportion of industrial property loans grew over the past two years, up 15.9% in 2016 and 11% in 2017.
When the growth in net operating income slows down, the commercial real estate market is in risk of hurting borrowers’ ability to service debt and ultimately affecting cash flows. More insurers invested in residential mortgages within the last decade, with holdings ballooning to $20.2 billion in 2017 from $5 billion in 2008.
