The U.S. insurance industry held direct real estate assets valued at $56.8 billion through year-end 2014, up from $39.0 billion at the end of 2005, according to a new special report by A.M. Best.

The Best’s Special Report, titled, “Commercial Real Estate Exposure for Insurers—A Total Picture,” states that the health segment has the largest direct real estate exposure as a percent of invested assets, at 10.0% in 2014, compared with 7.0% in 2006. Both the property/casualty (P/C) and life/annuity (L/A) segments have significantly lower levels of exposure, representing less than one percent of invested assets. From an exposure perspective as a percent of capital, the health segment has seen an increase to 16.2% in 2014 from 11.8% in 2005. Conversely, the L/A segment has seen a steady decline to 5.3% in 2014 from a high of 7.2% in 2008, while the P/C segment has declined to 1.5% from a peak of 2.3% over the same period.

None of the individual real estate classes amounts to more than half of capital and surplus in any segment, aside from commercial mortgage loans within the L/A segment. When aggregated, however, the exposure paints a slightly different picture. On a combined basis, total real estate-related holdings within the L/A segment peaked in 2008 at 181.7% of total capital as investments within these asset classes were increasing and realized and unrealized losses led to a decline in capital for the segment. Exposure has since declined to 152.0% of total capital in 2014 as favorable operating income has contributed to an improving capital position, outgrowing continued investments within these asset classes.

The health segment exposure to total real estate-related investments increased to 20.4% of capital and surplus in 2014 from 13.1% in 2005. While the majority of exposure is a result of direct real estate holdings, the health segment has fewer risks associated with these investments than the L/A segment due to the fact that the large majority of this exposure is through real estate occupied by the company for purposes of business as opposed to more investment-related purposes. The P/C segment has even less exposure, fluctuating between 8.0% of policyholder surplus in 2005 and 11.5% reported in 2014.

Insurance companies also own various forms of real estate-related investments, as reported in Schedule BA with the statutory filings, which includes indirect investments held in the form of hedge funds, joint ventures, partnerships and limited liability companies. Total insurance industry exposure to real estate investments reported on Schedule BA has increased to $43.0 billion in 2014 from $11.9 billion in 2005, nearly tripling over that time period.

To access a copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=245344.

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