Covid 19 Pandemic And The Increase In Commercial Mortgage Loan Holdings By The US Insurers

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Reportedly, US Life, Annuity Insurers now hold almost $522 billion in commercial mortgage loans, incredibly increasing compared to $382 billion in 2015.



Over the past five years, there has been a steady increase in the commercial mortgage loan holdings. Annuity Insurance and US Life have been at the forefront of facing this dramatic increase. The rise in the number of cases has become a major problem. This has led to exposure to low quality credit programs, schemes or offers as well. As per the report issued by the AM Best, a global credit rating agency that has the authority in the insurance industry, low quality credit schemes have constantly been on the rise.

It is now close to $522 billion and it was somewhere near $382 billion in 2015. This is something that is hard to believe. The report clearly indicates an 8% increase year-over-year.

A commercial mortgage, a type of mortgage loan is often secured by commercial properties that include shopping malls, offices, centers, industrial warehouses, complexes, etc. The proceeds from the commercial mortgages that are always developed on the basis of the needs of the borrowers and lenders are generally to refinance, revamp, redevelop or acquire commercial property.

GDP growth is still favorable but what boded well for the holdings is the low unemployment. Apart from this, there are increasing retail sales during the year 2019. If we take a look at the recent trends in the field of real estate, in sale and purchase of the commercial properties, it can be noted that the developments will further lead to significant declines in percentages in the holdings,

The report also presents other significant figures. Hotel and motel properties, which together constitute a total of the 4% of the annuity and life insurer’s commercial mortgage loan investments, are also under pressure. This situation will continue for the next couple of months as well or such hotel and motel properties are expected to come out of this pressure after the end of the Covid 19 pandemic.

As per the reports issued by the AM Best, hospitality sector, or particularly hotel properties are in trouble. They are experiencing higher vacancy rates. Next in line are the commercial offices or other retail properties. If the situation continues until the end of the year, 2020, this will engulf more of the businesses and will further prove to be more detrimental for the quality of credit. This aforementioned trend has the power to affect the performance of other mortgage-backed assets, as well that include but not just limited to commercial mortgage-backed securities.

The pandemic is leading to the loan forbearance. There are restrictions on travel. Work is remote. There is a lot of potential for deterioration in credit quality and this will continue to grow as well. AM Best clearly described the possible deterioration of the credit or loan quality in the report.

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