From a report released on August 7, 2012 by CRE Finance Council (CREFC) and Trepp LLC on commercial mortgage investment performance, Insurance companies responding to their survey hold almost half of the total commercial real estate mortgage exposure of life insurance companies ($150 billion in combined commercial mortgage assets out of a total of $313 billion) and no Life Insurance company reported a loss greater than 1% during the survey period of January 1, 2011 to Dec. 31, 2011.
Loss Data By Type of Loan
Realized losses were found mostly in first mortgage investments at 83.24% of all company losses reported. Higher yielding subordinated debt instruments were reported for 14.10% of all losses and construction loans accounted for only 2.66% of all losses.
The Severity of the Loss Was Low on Average
When losses were recorded, the severity of realized losses for insurance companies averaged only 9.19% of the par balance for first mortgage investments. The financial impact of troubled loans were held at bay due to the quality of real estate in insurance company portfolios.
Losses by Property Type
The office property type accounted for 31.61% of all realized losses from participating companies followed by multi-family at 23.43%, retail at 11.04%, industrial at 21.93% and hotels at 2.34%.
When Losses Occurred; Four Core Property Types Showed Low Losses on Average
Multifamily’s showed an averaged loss of 12.87%, Industrial showed a 12.57% loss, Retail showed a 9.71% loss and Office showed a 8.54% loss.
Total loan delinquencies (30 days or greater) recorded by participating companies within their general account holdings and subsidiary entities averaged 0.43% in contrast to CMBS loan delinquencies which recently topped 10% a record high.
These findings clearly demonstrate the solid investment performance of life insurance company’s commercial mortgage portfolios and demonstrate why they continue to invest in this sector.
Q10 Capital’s 16 member companies represent over 50 life insurance companies as correspondents in various markets across the country.
Article credit to Robert M. Stout, CRI, President and CEO of Q10 Capital, LLC