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Life and Health Insurers Have About $99 Billion in Hotel-Backed Investments

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U.S. life and health insurers hold about $99 billion in lodging-related debt, but most should come out of the COVID-19 travel freeze in pretty good shape.

Jennifer Johnson, an analyst with the National Association of Insurance Commissioners’ Capital Markets Bureau, has put data supporting that conclusion in a review of U.S.  insurers’ holdings of commercial mortgage-backed securities, or CMBS, that are tied to hotels, motels and other forms of lodging.

Resources

  • A copy of the NAIC’s lodging exposure report is available here.
  • An article about life insurers’ credit card-related assets is available here.

A commercial mortgage-backed security is an arrangement that gives an investor a chance to profit on a loan that a company has used to buy real estate, or on a collection of two or more commercial mortgage loans in a “pool” of loans.

The NAIC is a Kansas City, Missouri-based group of state insurance regulators. One of state insurance regulators’ main jobs is to oversee U.S. insurers’ $6.5 trillion in investments.

U.S. insurers ended 2019 with $174 billion in investments in CMBS assets, and $125 billion in lodging-related CMBS holdings, according to NAIC data in the new report.

Life insurers have $95.4 billion lodging CMBS holdings, and health insurers have $3.4 billion in lodging CMBS holdings.

Credit rating analysts have predicted that, because of all of the disruption caused by COVID-19 and COVID-19-related travel restrictions, about 10% of lodging loans could peak by the end of 2021, Johnson writes in the new report.

But U.S. insurers invest mostly in CMBS backed by the safest, most carefully designed lodging loans, with the value of the loans equal to just 59% of the lodging properties’ value, Johnson writes.

Those lodging CMBS account for just 3% of all U.S. insurer assets, Johnson says.

“Still,U.S. insurers with thin capital buffers and high relative exposure to financial market volatility are most at risk of potential credit deterioration,and they should be monitored accordingly,” Johnson writes.

— Read U.S. Life Insurers Add $44 Billion to Mortgage Investments, on ThinkAdvisor.

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