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Fitch: U.S. Life Insurer Mortgage Performance Strong Amid Credit Concerns
June 13, 2017 / 2:40 PM / 5 months ago

Fitch: U.S. Life Insurer Mortgage Performance Strong Amid Credit Concerns

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: U.S. Life Insurers’ Mortgage Update (Performance and Real Estate Fundamentals Remain Strong; Some Concerns Persist) here NEW YORK, June 13 (Fitch) Mortgage exposure for U.S. life insurers continued a run of strong performance in 2016 driven by low credit impairments, according to a new Fitch Ratings report. The overall credit quality of performing mortgages was high, with 59% rated NAIC CM1 with strong credit metrics and 32% rated CM2 with adequate metrics. Despite strong mortgage performance, U.S. life insurers could be exposed to credit concerns tied to aggressive underwriting in hotel and multifamily, which are further along the commercial real estate cycle. Other concerns include new construction in certain markets and an increasing amount of interest-only loans as a percentage of total loans. Investment in mortgages grew 7.5% in 2016 to $389 billion for life insurers in Fitch's universe, which remained strong relative to the prior-year growth rate of 7.7%. "Investment in mortgage loans over the last two years by life insurers was above historical growth rates for the industry as life insurers continue to trade liquidity for yield," said Nelson Ma, Director, Fitch Ratings. In 2016, approximately 90% of life insurers in Fitch's rating universe experienced some degree of growth in their mortgage portfolio. Mortgage allocations of life insurers for the industry have largely increased beyond historical allocations of between 8% and 12%, with the average allocation at 11.9% at year-end 2016. Approximately one-fifth of companies in Fitch's universe had mortgage allocations above 17%, which the agency views as above-average and potentially more vulnerable in a declining real estate scenario. A number of companies with above-average mortgage concentrations have a demonstrated track record of good performance within this asset class during the financial crisis. Additionally, some of the life insurers with above-average concentrations to mortgages have well diversified mortgage portfolios by type. The companies with the greatest year-over-year increases in mortgage loans were a mix of relatively newer entrants to the mortgage loan market and those with substantial mortgage holdings. While commercial mortgages remained the dominant type of new mortgage on a notional basis, the net growth rate of residential mortgages, particularly multifamily and single family, and mezzanine loans were strong in 2016. Commercial properties accounted for 74% of total mortgages, followed by multifamily mortgages at 13%. Life insurers' net investment in CMBS increased 8% at year-end 2016 to $121 billion, or 3.9% of cash and invested assets. However, unlike the increase in mortgage loan investments that was almost industrywide, the relative year-to-year change in CMBS investment was mixed at the individual company level as the net industry increase was driven by larger increases in approximately one-quarter of life insurer's in Fitch's universe. Roughly 40% of life insurers had net decreases in CMBS exposure in 2016. Real estate sector fundamentals continue to build on the positive trends observed in recent years. However, certain markets with significant exposure to oil and gas or large amounts of new construction could face challenges in the coming years. The full report 'U.S. Life Insurers Mortgage Update' is available at '' under 'Insurance' and 'Special Reports', or by clicking on the link. Contact: Nelson Ma, CFA Director +1-212-908-0273 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Douglas Meyer, CFA Managing Director +1-312-368-2061 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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