The Best’s Special Report, titled, “Mortgage Loans Remain an
Apartment buildings have been a focus for insurers, with investments rising by an average 15% annually over the last four years and now accounting for over 22% of insurers’ mortgage portfolios, compared with 16.8% in 2013. Offices still constitute the largest share of insurer-held mortgage loans, even though the growing focus on other property types has led to a decline in the allocation to 26.3% in 2017 from more than 29% in 2013. The insurance industry has seen its share of retail mortgages decline to 21.7% in 2017 from 24.3% in 2013, likely attributable to the effect of negative headlines and perceptions.
In contrast, the proportion of industrial property loans has grown over the last two years, up 15.9% in 2016 and 11% in 2017. The big risk for the commercial real estate market is that the growth in net operating income could slow down, thereby hurting borrowers’ ability to service debt and ultimately affecting cash flows. The last decade has seen an increase in insurers’ appetite for residential mortgages, with holdings more than quadrupling to
Although the L/A segment’s exposure to commercial mortgage loans is significant, these investments are well diversified geographically and by property type, and are generally concentrated among a small group of larger L/A insurers with experience in this asset class. Additionally, investment losses from mortgage loans historically have been low compared with the losses incurred by such loans originated by banks and other lenders.
To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=283082.
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Source: AM Best