- How can my life company become a LifeComps Participant?
- What are the costs of Participation
- When is performance data released?
- What are the LifeComps goals and objectives?
- What analysis is included in each quarterly LifeComps Index™ report?
- Which life companies currently participate in LifeComps?
- How large is the commercial real estate mortgage market as an asset class? How great a component of that class is held by Life Insurance Companies? What percentage of the Life Insurance Company market is represented in LifeComps?
How can my life company become a LifeComps Participant?
Any life insurance company may become a LifeComps Participant, provided they become a party to the LifeComps Organizing Agreement and can provide updated commercial mortgage loan performance data quarterly in the form and to the extent then currently required for the calculation and publication of the index. Please contact Joan Freedman, Sagamore Advisors, Inc., for information on membership.
What are the costs of Participation?
LifeComps Participants pay a pro-rata share of annual operating expenses for the maintenance of the LifeComps Index™. New Participants pay a fee which contributes to the development of enhancements to the LifeComps Index™. Please contact Joan Freedman, Sagamore Advisors, Inc., for the most current fee schedule.
When is performance data released?
Data is release quarterly, 60 days after the end of each quarter in accordance with the LifeComps Antitrust Compliance Guidelines.
What are the LifeComps goals and objectives?
When the real estate recession of the early nineteen nineties began to affect delinquency rates in the commercial whole loan mortgage market, institutional investors in those loans had no publicly available industry-wide historic return data to use to anticipate potential investment losses. Long-term performance data for competing investment asset classes, such as public bond indices, had been published for many years, allowing investors to understand the effects of economic cycles on bond returns.
To remedy this lack of comparative commercial real estate whole loan return data, five major life insurance company investors - The Equitable, John Hancock, Northwestern Mutual, Principal Financial, and Prudential Insurance Company of America - resolved to build the first robust database to capture commercial real estate whole loan performance data over time, along with that of the underlying real estate collateral. They have since been joined by Allstate Life Insurance Company, Connecticut General, Sun Life, and TIAA.
The LifeComps Index™ was created in 1997
to provide a quantifiable investment performance index that could be used to compare returns on life insurance company investments in private commercial real estate whole loans with those of other investment asset classes, such as public and private bonds, or equities; and
to serve as a benchmark for privately held commercial real estate mortgages so that an owner of these whole loan instruments could compare its investment performance with that of an aggregate life insurance industry commercial mortgage portfolio.
Benchmarking against an index is a standard investment performance measurement tool and can be used to measure not only the overall relative performance of one portfolio against another, but also, through attribution analysis, assess whether the differential in performance is due to the allocation of assets among subclasses within the portfolio or the selection of the investments within each subclass.
The maintenance of a database for both loan performance and the underlying real estate collateral performance supplies the required data for the long-run correlation of credit losses on the mortgages to the underlying cycles within the real estate market. For the first time, the detailed investment performance data that has long been available to the public bond market will be published for commercial real estate whole loans in the LifeComps Index™.
What analysis is included in each quarterly LifeComps Index report?
Each quarter, LifeComps calculates time weighted total return, income and appreciation returns, cash yields, and duration adjusted yields, and performs attribution analysis, delinquency, and basis point loss analysis for each Participant and for the Aggregate for the total portfolio and for property type, region, loan size, origination year, duration bucket, and delinquency status sub-portfolios.
Time Weighted Total Rate of Return. Total rate of return takes into account both the income return (interest payments) and the change in market value of the fixed income commercial real estate mortgage loan due to both changes in the term structure of interest rates and the changes in credit quality of the mortgage. Modified Dietz is an industry standard time weighted return calculation that uses day weighting of actual transactions to calculate a return.
Mortgage market values are calculated by each Participant and submitted quarterly. LifeComps uses actual time-stamped mortgage accounting flows submitted by Participants.
In addition to the basic quarterly total rate of return, LifeComps calculates an index (9/30/1996 base = 100), a rolling four quarters return (the last four quarters’ returns are geometrically linked to measure the latest annual return), a calendar year to date return, a three-year, five year, and cumulative annualized total return with a quarterly standard deviation. All returns are calculated for the entire portfolio and for attribute level sub-portfolios for property type, ACLI region, loan size bucket, duration bucket, year of origination, and loan delinquency status.
Cash Yields. Quarterly and rolling four quarters’ cash yields (on time weighted outstanding principal balance) are also calculated.
Attribution Analysis. In addition to the basic total return and cash yield calculations, LifeComps performs attribution analysis on both nominal returns and duration-adjusted returns (returns net of the effects of changes in the term structure of interest rates). These reports compare each Participant’s returns to those of the LifeComps Aggregate by attribute classification (primarily by property type and region) on both a quarterly and an annualized basis by decomposing the return into that component due to the Participant’s sector allocation effects (the amount of return generated by the concentrations within each attribute class, for example the proportion of assets in apartments versus office loans) and that component of return due to selection effects (the amount of return generated by the Participant’s relative performance within one class as compared to the Aggregate performance, for example outperforming the Aggregate return on apartment loans). Attribution analysis is a standard performance measurement tool.
Delinquency and Basis Point Loss. LifeComps collects data on all mortgage loans that have been foreclosed within the LifeComps database and periodic foreclosed property performance data thereafter until the date of its sale.
Delinquency status for every loan in the portfolio is collected quarterly as are paid to dates and the actual dates of all loan payments.
Quarterly "cradle to grave" updated yield calculations – the overall yield from the original date of the initial investment through to the final payoff or sale of the loan or of the foreclosed real estate– will be estimated then compared to the original promised yield on each mortgage loan to measure total basis point loss. This loss will reflect credit events, the effects of late payments or restructures on return, and the performance of the underlying real estate collateral.
Please contact Joan S. Freedman, Sagamore Advisors Inc., database administrator for LifeComps, for details concerning the formulas or the data specifications.
Which life companies currently participate in LifeComps?
There are nine current LifeComps participants: Allstate Life Insurance Company, AXA Equitable, CIGNA, John Hancock, Northwestern Mutual, Principal Financial, Prudential Insurance Company of America, Sun Life, and TIAA.
How large is the commercial real estate mortgage market as an asset class? How great a component of that class is held by Life Insurance Companies? What percentage of the Life Insurance Company market is represented in LifeComps?
According to the latest Federal Reserve Flow of Funds data for first quarter 2018 (second quarter not yet released), the overall commercial mortgage market (including multifamily) is approximately $4,105.9 Billion of which $471.3 Billion (11.5%) is held by Life Insurance Companies.
LifeComps Participants currently represent about 30% of the total Life Insurance Company held commercial mortgage market, with approximately $139.56 Billion principal balance in 7,794 loans at June 30, 2018.