Life insurance companies are not suffering from exposures to commercial real estate, despite previous concerns that mortgage loan investments could drag down the companies' financial strength ratings, Fitch Ratings reported Tuesday.
Fitch said fears over losses on mortgage loan portfolios subsided as fundamentals tied to commercial real estate stabilized.
In fact, commercial mortgage investments in life insurers' portfolios were classified as highly performing in 2011. Fitch says CMBS loans offered relatively solid yields and low levels of realized capital losses.
Capital losses in 2011 fell to $462 million, compared to $1.3 billion in 2010, beating Fitch's estimate of losses between $500 million and $1 billion.
Impairments also fell from $857 million to $346 million.
Fitch said it expects 2012 realized losses on life insurers' commercial mortgages to be in line with 2011 levels. That could change if the economy double-dips, increasing investment-related impairments, Fitch noted.
"The combination of a relatively favorable earnings yield and acceptable capital losses is boosting demand for commercial mortgages in the investment portfolios of many life insurance companies," the ratings agency said. "New money investment in mortgages increased 25% to $56 billion in 2011, led primarily by the larger insurance companies."
The years insurers need to worry about are 2015 through 2017 when the lending market is healthier and refinance risk resurfaces for CMBS loans tied to life insurance portfolios, Fitch noted.