Insurers' next headache? Commercial-mortgage defaults, says Fitch

Already under pressure from credit rating agencies, U.S. life insurers are about to be rocked again — by defaults on their investments in commercial real estate and mortgages, according to a report from Fitch Ratings Ltd.
DEC 01, 2009
Already under pressure from credit rating agencies, U.S. life insurers are about to be rocked again — by defaults on their investments in commercial real estate and mortgages, according to a report from Fitch Ratings Ltd. Unless the commercial real estate market recovers, Fitch estimates that commercial-mortgage-backed securities of recent vintages will suffer losses that average out to about 9%. The ratings firm expects pressure on the securities and other non-AAA rated bundles of commercial mortgages to rise sharply next year. Fitch projects the potential losses from commercial-mortgage-backed securities owned by life carriers to be between $13.1 billion and $16.0 billion. Directly-placed mortgages will generate $5.4 billion to $6.6 billion in losses through 2011, under Fitch's core stress scenario. As of the end of 2008, Fitch's universe of life carriers had about $308 billion or 12% of invested assets in directly-placed mortgage loans. Exposure to commercial mortgage-backed securities, including collateralized-debt obligations comprised of commercial real estate, topped $150 billion or 5.8% of total invested assets at the end of last year, according to Fitch. However, most of the securities were investment-grade, as less than 2% of invested assets were in high-yield securities at the end of 2008, according to Fitch. Fitch also notes that the steep declines in statutory capital over the last 18 months have hobbled the insurers' ability to get through an extended downturn. To date, the life insurers have not recognized material impairments or losses on investments related to commercial real estate, according to Fitch.

Latest News

Large RIAs name ChatGPT, Copilot and Claude in job posts far more than advisor AI tools
Large RIAs name ChatGPT, Copilot and Claude in job posts far more than advisor AI tools

When the largest RIAs recruit for AI, they name Copilot, ChatGPT and Claude in job posts far more often than advisor-specific fintechs, Caddi data shows

Mariner’s Hugo AI uncovered $22B in client assets, says Marty Bicknell
Mariner’s Hugo AI uncovered $22B in client assets, says Marty Bicknell

Bicknell said that Mariner's Humanity Labs partnership is key to growing his mega-RIA from 70,000 to 500,000 households by 2028

SEC finalizes $1B small-entity threshold for RIAs
SEC finalizes $1B small-entity threshold for RIAs

Final rule moves roughly two-thirds of SEC-registered RIAs under the Regulatory Flexibility Act’s small-business lens, up from about 3%

Clients sue Arkadios Wealth, allege firm sat on advisor’s red flags
Clients sue Arkadios Wealth, allege firm sat on advisor’s red flags

The firm's own reports showed the problem. The complaint says it did nothing.

Lawsuit accuses Blue Owl of inflating assets in $4.3B merger
Lawsuit accuses Blue Owl of inflating assets in $4.3B merger

The complaint points to interest rate risk and AI disruption the BDC allegedly ignored.

SPONSORED Built on insurance experience to deliver on long-term promises

Knighthead Life entered the market with a competitive MYGA. A strong launch earned advisor confidence and paved the way for FIAs.

SPONSORED In the Age of AI, Trust Becomes the Advisor's Greatest Asset

As AI makes financial information more accessible than ever, Lana Hock explains why human judgment, trust, and empathy remain the qualities clients value most in a financial advisor