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ֳ Wire

U.S. Life Insurers’ Exposure Limited to Rising Commercial Real Estate Losses

Fri 16 May, 2025 - 11:37 AM ET

Related Content: U.S. Life Insurers’ Mortgage Update

ֳ-New York/Chicago-16 May 2025: U.S. life insurers’ commercial real estate (CRE) losses are expected to increase over the near-term but will not in isolation result in ratings downgrades, as rated life insurers have limited, well-diversified real estate exposure and ample capital to absorb losses, ֳ says.

CRE represented 16% of rated life insurers’ investments at YE 2024. This was comprised of commercial mortgage loans (CML) at 11%, commercial mortgage-backed securities (CMBS) at 4% and real estate equity at 1%. Mortgage loans, including CMLs, residential mortgage loans (RMLs), agricultural and mezzanine loans, were about 14% of allocated capital of U.S. life insurers total investment portfolios.

Sustained higher mortgage rates have led to an increase in expected credit losses. Unrealized losses as a percentage of all mortgages more than doubled in 2024 to 0.47% from 0.23% in 2023. ֳ expects continued increases in troubled mortgages in 2025 and sustained usage of mortgage loan restructuring as the primary method to mitigate losses.



Portfolios have seen a downward quality migration in recent years, as defined by NAIC mortgage rating metrics. Office continues to be the most problematic class of CML at 18% YE 2024, down from 20% at YE 2023. We expect general stability within the CML portfolio at YE 2025, with further modest loan-to-value and debt service coverage ratio deterioration.

Life insurers have steadily added mortgages to their portfolios over the last 10 years, aside from the initial stages of the pandemic. Residential has emerged as the primary driver of mortgage growth as life insurers contend with CRE deterioration due to their attractive relative risk-adjusted returns. We expect RMLs to remain in high-growth mode as companies continue to be cautious about CRE, especially office. RMLs also can potentially qualify as collateral under the FHLB program, providing insurers with significant advantages in terms of optionality and liquidity.

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Contacts:

Zachary Shutts
Senior Director
+1 312 368 2098

ֳ, Inc.
One North Wacker Drive
Chicago, IL 60606

Jamie Tucker, CFA, CPA
Senior Director
+1 212 612 7856
Jamie.tucker@fitchratings.com

Laura Kaster, CFA
Senior Director, Risk
North and South American Financial Institutions
Credit Commentary & Research
+1 646 582 4497
laura.kaster@fitchratings.com




Media Relations: Anne Wilhelm, New York, Tel: +1 212 908 0334, Email: anne.wilhelm@thefitchgroup.com

The above article originally appeared as a post on the ֳ Wire credit market commentary page. The original article can be accessed at . All opinions expressed are those of ֳ.


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