Best’s Special Report: Continued Shifts in US Life/Annuity Insurers’ Mortgage Loan Portfolios

OLDWICK, N.J.--(BUSINESS WIRE)--U.S. life/annuity (L/A) insurers increased their holdings in mortgage loans by 8% in 2022, reaching $691.2 billion, according to a new AM Best report.

The Best’s Market Segment Report, “Continued Shifts in US Life/Annuity Insurers’ Mortgage Loan Portfolios,” notes that this segment has been expanding their allocations to mortgage loans for the past decade. The majority of this growth came from commercial mortgage loans, which increased to $605.5 billion in 2022, up from $570.1 billion a year earlier.

“Because of persistently low interest rates prior to 2021, commercial mortgage loans were offering more attractive yields than investment-grade quality bonds,” said David Lopes, senior industry research analyst, AM Best. “Shifting allocations to mortgage loans helped mitigate the spread tightening between liabilities and assets.”

The report explains that multiple economic forces are posing challenges for L/A insurers’ mortgage loan portfolio managers. The pandemic accelerated the shift to employees working from home, making office space unnecessary in certain instances, which led to a rise in vacancy rates. Furthermore, interest rates have risen steadily since March 2022, which makes borrowing more expensive and drives down demand.

“The share of office properties in mortgage portfolios continues to decline and accounted for only 11% of newly issued mortgages in each the last two years, less than half the level in 2018,” said Jason Hopper, associate director, AM Best. “The industry’s mortgage portfolio allocation to office properties dropped to 21% in 2022, from over 26% in 2018.”

Among the report’s other key findings:

• Insurers have shifted their investments toward multi-unit/apartment properties, which now account for roughly 30% of the industry’s mortgage loans;
• Since 2019, problem mortgage loans have grown nearly 77%, to over $4.5 billion, but are still less than 1% of capital and surplus;
• Restructured mortgages drove the increase in problem mortgages, rather than mortgages that were 90 days overdue or in foreclosure;
• Despite making up only 8.5% of all mortgages owned by L/A insurers, residential mortgage loans account for more than half of all problem mortgages.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=335868.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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