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Life Company Mortgages Generate 4.99 Percent Return In 2017

 

BOSTON, March 1, 2018 – Commercial mortgage investments held by life insurance companies returned 4.99 percent in 2017. Fourth quarter’s total return of 0.52 percent followed gains of 0.93 percent in the third quarter, 1.85 percent in the second quarter, and 1.60 percent in the first quarter, according to the LifeComps Commercial Mortgage Loan Index.

 

Income contributed 1.08 percent while price subtracted 0.56 percent in fourth quarter. Higher treasury yields drove the price decline as yields on the 5- and 10-year treasuries rose 28 bps and 7 bps respectively over the quarter.  Mortgage spread movement, credit migration and portfolio growth made a positive contribution to overall price return.

 

For the year, income contributed 4.50 percent and price added 0.49 percent.  Treasury yields impacted portfolio returns negatively as the yield curve shifted up for terms of 7 years and below, however tighter mortgage spreads and other valuation factors were enough to overcome the higher treasury yields.   

 

Of the four major property types, apartment loans fared best for the quarter with a return of 0.58 percent compared to 0.47 percent for retail, 0.46 percent for office and 0.32 percent for industrial.  For the year, apartment loans performed best with a return of 5.30 percent followed by office at 4.96 percent, retail at 4.53 percent and industrial at 4.45 percent.

 

 

Commercial Mortgage Loan – Total Return by Property Type
as of December 31, 2017

Property

Quarter

12 months

Apartments

0.58%

5.30%

Office

0.46%

4.96%

Retail

0.47%

4.53%

Industrial

0.32%

4.45%

All*

0.52%

4.99%

*Includes hotel, mixed use, and other commercial


About LifeComps

The LifeComps Commercial Mortgage Loan Index is the only published benchmark for the private commercial mortgage market based on actual mortgage loan cash flow and performance data, which has been collected quarterly from participating life insurance companies since 1996. Active loans in the LifeComps Index number approximately 5,300 with an aggregate principal balance of $129 billion. The weighted average duration is 5.5 years and average reported loan-to-value is 50 percent.

Participating life insurers in fourth quarter 2017 include Allstate Life Insurance Company, CIGNA Investment Management, AXA Equitable, John Hancock, Northwestern Mutual, Principal Financial, Prudential Insurance Company of America, and TIAA. For more information, visit www.lifecomps.com.