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Moody’s: Insurers’ credit losses declined in 2012

Life insurance companies report average pre-taxed realized bond/preferred stock credit losses in 2012 of 22 bps.
Life insurance companies report average pre-taxed realized bond/preferred stock credit losses in 2012 of 22 bps.

U.S. life insurance companies’ 2012 statutory credit losses declined in 2012, according to a new report.

Moody’s Investors Service, New York, arrives at this conclusion in a June 2013 report that analyzes the realized investment losses of U.S. life insurers’ bond and commercial mortgage loan (CML) holdings in 2012.

On a statutory basis, Moody’s-rated life insurance companies report average pre-taxed realized bond/preferred stock credit losses in 2012 of 22 basis points (compared to 38 bps in 2011) of fixed income invested assets (excluding CMLs).

U.S. life insurers reported pre-tax realized statutory investments (including the decline in valuation reserve) in 2012 of $136 million on CML portfolios compared to pre-tax realized losses of $26 million (one bp of CML book value outstanding) in 2011. Cumulative CML losses totaled about 133 bps over the 2008-2012 period, which the report characterizes as “relatively modest” compared to previous commercial real estate downturns.

“Absent significant negative economic developments, overall credit losses in 2013 are expected to be at similar, historical levels in the range of 20-25 bps of fixed income assets,” the report states.

Below is a summary of Moody’s-rated U.S. life insurance industry’s average pre-tax realized bond/preferred stock credit losses for 2008 through 2012. Bond losses (net of transfers to interest maintenance reserve) are represented as a percentage of total invested assets, as well as a percentage of fixed income investments excluding CMLs.

U.S. life Insurance Industry Pre-Tax Bond/Preferred Stock Credit Gains/(Losses)  
  2008 2009 2010 2011 2012 Cumulative 5-year
% of Avg. Invested Assets -1.16% -0.63% -0.32% -0.29% -0.16% -2.55%
% of Avg. FI Investments ex CML -1.60% -0.87% -0.42% -0.38% -0.22% -3.49%
Amount ($B) ($30.40) ($16.70) ($8.50) ($8.10) ($4.70) ($68.40)

Sources: Moody's Investors Service, SNL FINANCIAL LC.

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