Insurers: Pain from Commercial Real Estate?

Life insurers gravitate to these assets because they are fixed-income in nature and long-term in maturation, making them especially well-matched with insurers' liabilities: the annuities and life insurance policies they sell. (Insurers often underwrite mortgages with different durations—for instance, of five, seven, or 10 years—to hedge their risks and ensure consistent income.) But when the real estate markets begin to sour, the possibility exists that commercial mortgages will default and perhaps take a toll on ratings.

So far, Standard & Poor's Ratings Services believes this has not happened. The foreclosure rate of commercial mortgages in life insurance portfolios is currently virtually zero. But we believe this will not necessarily be the case over the course of this economic cycle.