Life Insurers’ Exposure to Commercial Real Estate

Life insurers have significant exposure to commercial real estate (CRE) primarily through direct mortgage lending and commercial mortgage-backed securities (CMBS). These investments help life insurers match their long-duration liabilities with long-duration assets. As of 2022:Q4, commercial mortgages in life insurers’ portfolios stood at $600 billion, and hence, were their third-largest asset class, accounting for about 16% of the insurers’ total investments and about 14% of general account assets (figure 1).¹ Life insurers are also indirectly exposed to CRE through their investments in CMBS, which stood at about $170 billion in 2022:Q4. Recent developments in the CRE market, such as the shift to more people working from home following the Covid-19 pandemic resulting in lower demand for office space, as well as higher interest rates, have put pressure on commercial property values. Given their significant CRE exposures, life insurers could potentially experience significant losses if CRE prices deteriorate.

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