US life insurers exposed to $130bn of CMBS

US insurers held $190 billion of commercial mortgage-backed securities (CMBS) at end-2019, of which 75% filled the portfolios of life firms, data from the National Association of Insurance Commissioners (NAIC) shows.

Of this total, $173.5 billion qualified for NAIC designations, meaning they are factored into the computation of insurer risk-based capital requirements. Sixty-eight percent of this amount relates to senior tranche exposures and just 2% to subordinated tranches.

The majority (72%) of these NAIC-designated CMBS are collateralised by hotel loans, which may default en masse because of the disruption wreaked by the coronavirus. But the industry as a whole should be able to weather such losses, as CMBS made up just 3% of total US insurer cash and invested assets at end-2019.


Metlife, Prudential Financial and AIG, three of the largest life insurers in the US, had $10.5 billion, $17.5 billion and $14.8 billion of CMBS exposures as of end-2019.

Of Metlife’s exposure, 97% was rated top quality by the NAIC. The percentage for Prudential was 99%, and AIG stated that the majority of its CMBS were in tranches that contain substantial protection features.


What is it? 

The NAIC’s Capital Markets Bureau “monitors developments and trends in the financial markets generally, and specifically with respect to the insurance industry”.

It publishes periodic specialist reports to regulators and the public, offering insights into issues that could affect insurance company investment portfolios. The Capital Markets Bureau has published information on insurer asset portfolios at each year-end since 2010.

Why it matters

CMBS are under pressure amidst the coronavirus crisis. The loans to malls, hotels, and other large commercial properties that underpin them are ripe for default now their cash flows have dried up. 

Most US insurers would be able to bear a collapse in the value of their CMBS, considering how small a part they are of overall portfolios. But small participants with thin capital buffers could be at risk if the market continues to tank.

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