Insurance Company Investment Survey Central to Work of PL Sub-Forum

CRE Finance World, Autumn 2012

Insurance Company Investment Survey Central to Work of Portfolio Lenders Sub-Forum Managing Director andTodd Everett Head of Real Estate Fixed Income Principal Real Estate Investors Chair, Portfolio Lenders Insurance Company Sub-Forum T second quarter of 2012, the American Council of Life summary results of the survey. Insurance companies, representingdistribution of results. The time dedicated and value-add servicesprovided by Trepp have been greatly appreciated.In August, the CRE Finance Council and Trepp, LLC releasedhis year has provided insurance companies an idealenvironment to expand investment allocations tocommercial mortgages and to play an even greater rolein the commercial real estate finance industry. In the Insurers reported nearly $14.89 billion in new loan commitment nearly half of the industry’s total mortgage exposure with $150 activity for the sector. At $24 billion committed year-to-date, life billion in combined commercial mortgage assets, took part. The insurance companies are on pace to exceed last year’s total of participating companies contributed data from January 1–December $45.5 billion of commitments. 31, 2011, covering both their General Account and any subsidiaries, in order to fully capture performance, including any sub-performing Chart 1 or non-performing loans in subsidiary entities. ACLI Loan Commitment Amount ($ Billions) The results indicate the continuation of the superior investment performance achieved by U.S. insurance companies through allocations to commercial mortgages. Key data points from the survey (all as of year-end 2011) include: Mortgage Exposure Held The average commercial mortgage holdings of companies participating in the survey was 11.37% of total invested assets, ranging from a high of 17.81% to a low of 4%. Considering performance, the average risk profile of new investment activity (which continues to run in the low 60% loan-to-value range) and feedback from Sub-Forum companies at recent conferences, we might expect increases to exposure levels in future years. Based upon data released by the Federal Reserve System, Total Realized Losses insurance companies hold approximately 13.4% of the total U.S. commercial/multifamily debt outstanding in the first quarter of Total realized losses from the commercial mortgage holdings of 2012. In fact, insurance companies have increased their holdings participating companies (net of any recorded gains) retreated to in commercial mortgages by 6.2% since the end of 2010. With a level of only 6 basis points, with no companies reporting realized insurance companies commonly picking up 50 to 100 basis points losses greater than half of 1% in 2011. This is a loss rate typically of spread premium versus comparable quality corporate bonds, associated with very high quality corporate bonds and is down it’s easy to see the appeal. considerably from the last version of the survey. With this renewed focus, the efforts of the Portfolio Lenders Losses by Investment Type Insurance Company Sub-Forum to add value to its constituent, Realized losses were contained primarily in first mortgage investments are even more important. A primary initiative of the Sub-Forum at 83.24% of all company losses reported. Minor losses were has been its portfolio lenders survey. The survey was established reported from investment in higher yielding subordinated debt to collect previously unavailable industry performance data that instruments (14.10% of all losses) and construction loans (2.66% could be used in assessing investment performance during of all losses) where much lower levels of exposure are held. the downturn and for general benchmarking purposes of the participating companies. Loss Severities Experienced The severity of realized losses for insurance companies (when a Over the last six months, the Sub-Forum created an alliance with loss was recorded in 2011) averaged only 9.19% of the par balance Trepp, LLC, an industry leader in the collection and interpretation for first mortgage investments. The underlying quality of the real of loan performance data. The new partnership with Trepp generated estate in insurance company portfolios helped to mitigate the numerous advancements in the administration of the survey and financial impact of troubled loans. CRE Finance World Autumn 2012 8


CRE Finance World, Autumn 2012
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