U.S. life insurers' commercial mortgage portfolios outperformed the expectations of Fitch Ratings' analysts last year, the agency reports. In the Fitch-rated universe, insurers' commercial mortgages realized losses of $1.36 billion in 2010 – less than half Fitch's forecast of $3 billion. Insurers' 2010 losses also represented a slight decline from the $1.41 billion in losses taken in 2009.
As a percentage of the statutory book value of mortgage loans, realized losses totaled 0.46% in 2010 and 0.48% in 2009. This puts the industry on track to better Fitch's base-case loss projection on directly placed mortgage loans of 2% for the 2009 to 2011 period.
"Fitch's concerns over the industry's loss exposure have moderated, based on recent results and a nascent recovery in commercial real estate," says Andrew Davidson, a senior director at Fitch. "Mortgage loan performance benefited from increased liquidity and low interest rates."
Fitch goes on to state that inconsistencies in how insurance companies recognize loan losses could create an overly rosy picture, but that the distortion to overall loss experience for the industry is not material. Moreover, insurers are more hands on-in their management of loan portfolios as compared to during previous commercial real estate downturns. This trend may help minimize the impact of troubled mortgages on the statutory books.
