Problem
Still, distressed loans no matter the property type make up a mere $4.5 billion of the $691.2 billion of the total portfolio currently owned by life companies.
Last year, these companies had $639.8 billion, well above the $363.3 billion portfolio in 2013.
Over the past 10 years because of the low interest rate environment, life companies increased their exposure to mortgages because commercial real estate, the bulk of their portfolio,
Mortgages are 13.5% of their invested assets as of 2022, up from 10% in 2013.
"Shifting allocations to mortgage loans helped mitigate the spread tightening between liabilities and assets," said David Lopes, senior industry research analyst, in a press release.
That is now being affected by various multiple economic issues, the report said. The
Loans secured by office properties are on a downswing, as this property type was affected by the pandemic further driving the growth of work from home arrangements.
"The share of office properties in mortgage portfolios continues to decline and accounted for only 11% of newly issued mortgages in each of the last two years, less than half the level in 2018," said Jason Hopper, associate director. "The industry's mortgage portfolio allocation to office properties dropped to 21% in 2022, from over 26% in 2018."
Macroeconomic pressures have led to problems with debt service coverage ratios, a key commercial performance metric, the Best report noted. But helping performance is that many of these have loan-to-value ratios under 70%.
"Still, the performance of insurers' commercial mortgage loan holdings has historically been favorable due to disciplined underwriting, and low LTVs provide more room to withstand fluctuations in values," the report said.
The total commercial portion of the mortgage portfolio increased to $605.5 billion in 2022, up from $570.1 billion a year earlier.
Across all investor types, commercial and multifamily
In a separate
Instead, life companies are
Back in 2018, multifamily and office were nearly equal in share of life company portfolios, at 26.4% and 26.3% respectively, Best's data showed.
Retail, another problematic commercial property type, now accounts for 16.7% of life insurer portfolios, down from 22.1% in 2018.
Meanwhile, residential mortgages, just 8.5% of life company investments, are 77% of all of the problem mortgages. By dollar amount, residential mortgages ended last year at $58.8 billion, up from $44.1 billion in 2021. Almost all of the exposure, 97%, is held by 20 companies.
Those residential mortgages have replaced some commercial investments over the past decade. In 2013, this category was just $5.8 billion or 1.6% of the mortgages life companies owned.