Fitch Predicts Annuity Issuers Will Overcome Office Slump

U.S. life and annuity insurers are strong enough to shrug off the slump hitting the U.S. office market.

David Marek, the North American life insurance sector director at Fitch Ratings, gave that assessment last week during a Fitch real estate slump webinar.

Fitch analysts warned in April that higher interest rates and employers’ increased use of remote-work arrangements could make commercial real estate loan delinquencies severe enough to cause “global contagion risk” in 2025.

But Marek suggested that even a severe real estate slump is unlikely to have much effect on the ratings of the life and annuity issuers Fitch rates.

“ There’s significant headroom as a result of strong capitalization levels and high loan quality,” Marek said.

What it means: Commercial real estate problems could affect life and annuity issuer earnings over the next few years but are unlikely to have much effect on the issuers’ ability to make good on benefits promises.

The backdrop: U.S. life insurance policies and annuities are the equivalent of taco shells.

Because of regulatory constraints, the taco filling is made up mostly of high-grade corporate bonds.

Life insurers often put in real estate, real estate mortgage loans, mortgage-backed securities and other types of investments to add diversification and increase overall earnings.

Mortgages accounted for about 13.5% of life insurers’ cash and invested assets in 2022, according to a National Association of Insurance Commissioners Capital Markets Bureau analysis.

The slump: Trepp, a real estate market information firm, reports that typical U.S. office prices are about 35% lower than the peak prices.