Is It Safe? Prudential's Billions in Mortgages

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Moody's expects $375 billion in losses in the $3.5 trillion commercial mortgage and commercial mortgage-backed securities markets in the next 18 months. Standard & Poor's predicts "unprecedented stress" in those markets.

Life insurers held $328 billion in commercial mortgages at the end of December. Prudential Financial(PRU Quote) is more exposed than most, with $32 billion in mortgage loans representing 296% of the company's capital and surplus plus reserves. But does it matter?

The following is a breakdown of insurers and their mortgage loans:

SNL Financial LC

As is known, insurers, including Prudential, hold commercial mortgage-backed securities (CMBS). Life insurers also offer mortgages, mainly commercial (including farm and mezzanine loans), and residential loans totaling $5 billion.

Pacific Investment Management, a unit of Allianz(ALV Quote), which has $5 billion invested in mortgage loans, said last week the commercial market is a "bust."

In 2008, insurers didn't appear to take significant losses in mortgages, with only 26 companies recording so-called 90-days-past-due accounts totaling $108 million. But there was $89 million in restructured loans. Foreclosures were low at $190 million and only $546 million was recorded in losses.

Prudential reported that it had just $3 million in payments overdue 90 days or more as of Dec. 31. It restructured $1 million in loans and had no foreclosures.

Most insurers reported no delinquencies, restructurings or foreclosures. Those companies included Genworth Financial(GNW Quote) and Lincoln National(LNC Quote), each with $8 billion loan books.

One exception was Aegon(AEG Quote), which had $15 billion in mortgage loans but had restructured $26 million and foreclosed on another $49 million.

So is Pimco right?