Best’s Special Report: Commercial Mortgages Gained Larger Role in U.S. Life Annuity Insurers’ Investment Portfolios During 2023

U.S. life/annuity (L/A) insurers continued to increase allocations to commercial mortgage loan portfolios in 2023, but problem loans, including those 90 days delinquent, again rose sharply, according to a new AM Best report.

The Best’s Special Report, “Mortgages 90 Days Overdue Double,” states that L/A insurers expanded their allocations to mortgage loans last year by more than 6% to $734.2 billion, with mortgages now accounting for 13.5% of the segment’s investment portfolios. New acquisitions were fueled largely by multi-unit (28%), residential (26%), and industrial property loans (18%), accounting for over 70% of new acquisitions in 2023.

“Although yields rose in 2023, so did the number of problem loans, which have been climbing steadily since 2020, and were up by nearly 44% in 2023,” said Jason Hopper, associate director, AM Best. “The total amount of mortgages 90 days delinquent doubled, while those in the process of foreclosure were 63% higher than in 2022.”

According to the report, office properties account for more than a quarter of overdue loans and those in foreclosure and almost half of those that have been restructured but constitute just 17% of total mortgage portfolios. Office loans have recently faced headwinds due mainly to the impact of the pandemic and more people working remotely either full time or on a hybrid schedule.

The report also notes that the quality of mortgages in good standing continued to deteriorate in 2023, as economic conditions impacted debt service coverage and loan-to-value ratios. “This had resulted in a fallen angels scenario that happens when loans migrate down the credit scale,” Hopper said. “This trend is likely to continue until the market becomes more stable as a result of interest rates and loan maturity.”

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=344778.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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