CHICAGO--(BUSINESS WIRE)--
Despite a declining outlook for all U.S. CMBS property types and
escalation of losses, the U.S. life insurance sector should be able to
manage its exposure to commercial real estate-related losses in the near
to intermediate-term, according to Fitch Ratings in a new report.
However, in some cases, Fitch believes life insurer ratings may be
downgraded in the near-to-intermediate term due to the added pressure on
capital and earnings from CRE-related losses, when taken together with
losses on other asset classes and products.
With weakening commercial real estate fundamentals leading to increased
defaults, Fitch expects income and value declines across all segments of
commercial property. As a result, Fitch currently projects under its
'core' stress scenario (i.e. conservative expected case) the potential
CRE-related losses by U.S. life insurers will be in the range of $15.7
to $19.1 billion, compared with industry capital of $228 billion as of
June 30, 2009. Statutory net earnings were $22.4 billion during
firsthalf-2009.
"Loss exposure for U.S. life insurers will be mitigated compared to
other market participants due to their investment in higher credit
quality assets, strong capital position and earnings," said Senior
Director Andrew Davidson of Fitch's insurance ratings group. "Fitch's
Negative Outlook for life insurers continues to be driven largely by
concerns over investment losses due to deterioration in the financial
markets and the economic downturn."
The life insurance industry is, in general, better positioned relative
to many other market participants to ride out current market disruptions
due to its stable liability profile and positive cash flow. Fitch notes,
however, that significant declines in statutory capital over the last 18
months have weakened insurers' ability to manage through a prolonged
economic downturn.
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While most life insurers have yet to recognize material losses on their
commercial real estate-related investments, a sizeable portion of their
assets are entrenched in commercial real estate. And with an
increasingly negative outlook in the cards for CMBS over the next couple
of years, performance pressure on life insurers is likely to increase
over time.
"Commercial real estate (CRE) fundamentals are softening as rents are
declining and vacancies increasing in response to the broader economic
downturn," said Managing Director Bob Vrchota of Fitch's CMBS ratings
group. "Without a recovery for commercial real estate fundamentals,
recent vintage U.S. CMBS could experience losses averaging 8.7%."
Recognizing the ongoing uncertainty, and wide range of reasonable
outcomes surrounding such estimated average loss levels for CRE, Fitch's
insurance group recently increased the stress loss assumptions for most
CMBS vintages. Such stress losses are used as part of Fitch's pro-forma
capital analysis of insurance companies.
'U.S. Life Insurers: Commercial Mortgages the Next Shoe to Drop?' is
available at 'www.fitchratings.com'
under the following headers:
Sectors >> Insurance >> Research
Sectors >> Structured Finance >> CMBS >> Research
Additional information is available at 'www.fitchratings.com'
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DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
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THIS SITE.
Fitch Ratings
Douglas Meyer, CFA, +1-312-368-2061 (Chicago)
Andrew
Davidson, CFA, +1-312-368-3144 (Insurance, Chicago)
Robert Vrchota,
+1-312-368-3336 (Chicago)
Susan Merrick, +1-212-908-0725 (CMBS, New
York)
Brian Bertsch, +1-212-908-0549 (Media Relations, New York)
brian.bertsch@fitchratings.com
Sandro
Scenga, +1-212-908-0278 (Media Relations, New York)
sandro.scenga@fitchratings.com
Source: Fitch Ratings
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