Metlife, Life Insurers Drop as Commercial Mortgage Defaults Loom (Update2)

By Andrew Frye
Bloomberg News
December 22, 2008

Dec. 22 (Bloomberg) -- MetLife Inc. and Prudential Financial Inc., the largest U.S. life insurers, declined in New York trading on concern that losses on commercial mortgages will surge as the recession deepens.

No. 1 MetLife dropped $4.53, or 12 percent, to $32.88 at 4:02 p.m. in New York Stock Exchange composite trading. Prudential, based in Newark, New Jersey, fell $2.99, or 9.9 percent to $26.35. Lincoln National Corp. declined 13 percent.

Life insurers have cut jobs, curtailed stock buybacks and reduced dividends as losses on stocks, asset-backed securities and corporate debt deplete capital. The industry, which puts about 10 percent of its invested assets in commercial mortgages, may see losses rise to the highest levels since the early 1990s, according to Randy Binner, a life insurance industry analyst at Friedman, Billings, Ramsey Group Inc.

Commercial mortgage defaults are "certainly on the forefront of the radar screen," Binner, said in an interview. Binner lowered his stock recommendation on Prudential to "market perform" today from "outperform."

Prudential and Philadelphia-based Lincoln National have each plunged about 72 percent this year, compared with the 47 percent fall at New York-based MetLife.

U.S. commercial properties at risk of default could triple if rental income on apartments, offices and retail buildings drops even five percent, according to New York-based real estate analysts at Reis Inc.

Apartments, Offices

MetLife's commercial mortgage portfolio totals about $36 billion and accounts for about 12 percent of invested assets. The insurer also has $15.9 billion in securities linked to other loans on commercial property.

MetLife has "a defensive position" in commercial mortgages, Chief Investment Officer Steven Kandarian told investors on an Oct. 30 conference call. The portfolio's average loan-to-value ratio is 57 percent, and as of Sept. 30 less than $2 million of the loans were delinquent, Kandarian said.

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