GAMA International Journal Jul-Aug 2013 - 17

le ading in dicators

The Effects of Real Estate
Investments on Life
Insurance
Why It M at ter s

U.S. life insurers have been strong players in the real estate market in recent
years, especially in the commercial mortgage-backed securities market. Yet there
are concerns about the impact of their real estate investment losses on insurance
premiums and insurers’ capital reserves.
Life Insurers See Market Opportunities
The Mortgage Bankers Association says $244.2 billion in commercial and
multifamily loans were originated last year, up 24 percent from 2012. Life
insurance companies followed Fannie Mae, Freddie Mac, the Federal Housing
Administration, and commercial bank and savings institutions in origination
volume, which remained unchanged for life insurers.
National Real Estate Investor says that life insurance companies are the only
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lenders originating more loans today than at the peak of the boom. The
Mortgage Bankers Association expects outstanding commercial and multifamily
debt to top $2.4 trillion this year, up more than 2 percent from the end of 2012
and on pace to exceed $2.5 trillion by the end of 2015. The trade group expects
$119.5 billion, or 8 percent, of commercial and multifamily loans held by
nonbank lenders and investors to mature this year, down 21 percent from $150.6
billion last year. Around 7 percent, or $43.4 billion, of loans held in commercial
mortgage-backed securities (CMBS) and 7 percent, or $21.9 billion, of life
insurers’ outstanding mortgage balances will mature in 2013.
But with origination volume holding steady, life insurance companies are
looking to balance a desire for opportunities to boost yields with the need to
manage risk in an increasingly frothy market. “You have to be willing to take a
lower spread or a lower nominal rate in order to get the quality transaction
you’re looking for today,” says Lincoln Financial Group senior vice president
Donald Dibble.
To get higher yields, Dibble says Lincoln Financial Group is pursuing
mezzanine loans (loans secured by the stock of the company that owns property
as opposed to the real estate itself). Also, with the Federal Housing Finance
Agency ordering Fannie Mae and Freddie Mac to scale back their lending by at
least 10 percent this year, experts say insurers also will have a huge opportunity
to pursue apartment loans. Yet Brian Stoffers of CBRE Capital Markets stresses
that life companies will “maintain very credible underwriting.”
concerns Arise About Asset Prices, Interest Rate Risk
The 2013 Goldman Sachs Asset Management insurance survey indicates that
insurers are optimistic about investment opportunities and willing to assume more
portfolio risk this year. Insurers said they would increase allocations to bank

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GAMA International Journal Jul-Aug 2013

Table of Contents for the Digital Edition of GAMA International Journal Jul-Aug 2013
