In 2023, mortgage loans held by US life insurers reached record levels in terms of aggregate dollar value and as a percentage of invested assets. This surge occurred despite indications of weakening asset quality in their exposure to commercial real estate.
US life insurers, traditionally involved in commercial real estate, have shifted their focus while diversifying into residential whole loans. According to an S&P Global Market Intelligence analysis of disclosures in annual statutory filings, while overall holdings of loans backed by office property type declined 6.4%, the aggregate statement value of mortgage investments rose 5.5% to $732.49 billion.
Residential mortgages accounted for 11.2% of the mortgages held by life insurers at year-end 2023, an increase from 2.7 percentage points from 2022 and more than double their relative position at the end of 2020. Insurers have invested in residential whole loans individually and through acquisitions of whole loan pools.
The shift towards residential loans and high-performing commercial real estate property types such as industrial has helped mitigate the effects of deterioration in fundamentals in the office and retail sectors. However, life insurers have not been completely immune to it.
Data for 2023 showed evidence of deterioration, including some downward migration in commercial mortgage risk categories, higher loan-loss provisioning and a spike in other-than-temporary impairments to record levels on a current-dollar basis. Despite this, approximately 99.4% of the aggregate dollar value of uninsured commercial mortgages held by life insurers remained classified as being in good standing.
While overall portfolios continued to grow, the pace at which the industry's mortgage holdings expanded slowed significantly in 2023 with a growth rate ranking second slowest in a decade. The slowdown was primarily due to a significant decrease in acquisitions of uninsured commercial mortgages which plunged by 40%. This was partially offset by a 20.7% increase in acquisitions of uninsured residential mortgages.
Of the top 50 US life industry mortgage investors at the group level, 38 showed declines in mortgage acquisitions exceeding 20% on a year-over-year basis. This included a drop of 64.4% at the No. 1 mortgage holder in the sector, the US life subsidiaries of MetLife Inc.
Greater emphasis on residential mortgages has implications for insurers' risk profile and their asset-liability matching strategies. Residential mortgages are individually more susceptible to nonperformance relative to commercial mortgages, though the effects of a default are minimized by the smaller size of the typical loan.
From a duration standpoint, over 70% of the aggregate dollar value of uninsured residential mortgages held by US life insurers have maturity dates subsequent to 2050. This contrasts with uninsured commercial mortgages where 63.7% of loans outstanding at year-end 2023 are scheduled to mature between 2024 and 2030.
Four out of six US life insurance groups and stand-alone US life insurers that grew their mortgage holdings at the fastest rates in 2023 experienced dramatic expansions in residential loans.