Life insurance companies currently have $150 billion of commercial real estate exposure, and $308 billion total mortgage exposure according to Fitch Ratings.
The industry needs to brace itself for billions of losses unless commercial real estate markedly improves.
Fitch expects life insurers’ losses on commercial real estate investments to hit 9% of exposure.
Investment News: 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.
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 recognised material impairments or losses on investments related to commercial real estate, according to Fitch.