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UBS Analyst: Hartford, Principal Most Vulnerable to Commercial Mortgage Losses

Source: Hartford

Posted on 20 Feb 2009

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An analyst at UBS AG said that Hartford Financial Services Group Inc. and Principal Financial Group Inc. are the U.S. life insurers most vulnerable to losses on securities tied to commercial mortgages.

Insurers will need to write down the value of commercial mortgage-backed investments after Moody's Investors Service downgraded more than 1,200 securities, UBS's Andrew Kligerman said in a note to investors today. Hartford's and Principal's holdings are lower rated than the average for the U.S. life insurance industry, he said.

Life insurers have lost two-thirds of their market value in the past year as the recession forced down the value of assets backing policies including corporate debt, stocks and real estate investments. Commercial mortgage-backed securities have dropped amid concern that defaults on office and retail properties will continue to rise. Mortgages sold in recent years are considered riskier.

“Life insurers with higher 2006 to 2008 vintage and weaker-credit CMBS exposures are more vulnerable,” Kligerman said.

The life insurers with lower risk of losses from commercial mortgages include Aflac Inc., MetLife Inc., Lincoln National Corp., and American International Group Inc., Kligerman said.

Write-downs, Losses

North American insurers have posted more than $145 billion in unrealized losses and write-downs tied to the collapse of the mortgage market. Hartford’s commercial mortgage losses and write-downs total more than $6 billion, while Principal’s exceed $2 billion.

Principal and Hartford have each cut jobs, slashed their dividends and applied for aid from the Treasury program to bolster financial firms. Both firms received accounting relief from state regulators that allows them to reduce the assets set aside for client obligations.