Fitch: Life Insurers Face Mounting Commercial Mortgage Losses

ife insurers will report a material increase in credit-related losses on commercial mortgage loans this year and next, according to a forecast from Fitch Ratings. The projection is in contrast to Fitch's expectations for moderating investment losses across all other major asset classes. To the extent that commercial mortgage loan losses are contained within Fitch's base-case loss projections, further downgrades of the ratings on U.S. life insurers should be limited, the agency says. Realized losses in 2009 on directly placed mortgages totaled $1.5 billion, or 0.46%, versus Fitch's base-case loss projections of approximately $6 billion, or 2% over the cycle, implying additional losses of $4 billion to $5 billion to be taken this year and in 2011. Fitch notes that approximately 99.6% of mortgage loans held by U.S. life insurance companies were in good standing of Dec. 31, 2009, which represents significantly better performance compared to both the commercial mortgage-backed securities market and the mortgage loans held by banks. While Fitch believes that reported rates of delinquencies, foreclosures and loan restructurings may be a less meaningful measure of performance in this cycle due to increased active management of mortgage loan portfolios (i.e., loan sales), these traditional performance measures are expected to show a significant deterioration this year and next. The full report – ‘Meeting the Test: Life Insurers' Mortgage Snapshot’ – is available on the Fitch's website. SOURCE: [link=]Fitch Ratings


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