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Manulife, Allstate Units Vulnerable to Defaults

Some of the biggest life insurance companies might suffer as defaults rise on commercial mortgage-backed securities.

TSC Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking solid outperformance on a total return basis.

Life insurance

units at




Manulife Financial


held more risky mortgage assets than capital and reserves at the end of 2008, making them more vulnerable to loan defaults.

The credit quality of commercial mortgage-backed securities will likely decline this year as defaults rise and the real estate market deteriorates, a new report from Fitch Ratings says. The investment portfolios of the nation's largest

life insurance

companies might suffer as a result.

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life insurance

industry has $214 billion in commercial mortgage-backed securities, according to new data from SNL Financial, which tracks the portfolios of more than 800 life insurers. More than a third of that amount, or $86 billion, is invested in bonds rated A or less. The issuers of lower-rated bonds are more likely to default, Fitch says.

Fifteen of the top 20 life insurers had more commercial mortgage-backed securities than capital and reserves. Four of those companies held more of the riskier bonds, the ones rated A or less. They were Allstate Life Insurance; Manulife's John Hancock Life Insurance; Genworth Life Insurance, part of

Genworth Financial


; and Hartford Life Insurance, a unit of

Hartford Financial Services



Prudential Insurance Company of America, the largest insurance unit of

Prudential Financial


, is the largest holder of commercial mortgage-backed securities with $11.7 billion but almost all of that amount is invested in AA-rated or AAA-rated bonds.

The table below shows the life insurers with the largest holdings of commercial mortgage-backed securities. It compares those holdings to capital and reserves reflecting the amount of capital potentially at risk from increased impairments, or lost value from bond defaults. Ratings, recently cited for Best Stock Selection from October 2007 through February 2009 , is an independent research provider that combines fundamental and technical analysis to offer investors tremendous value in volatile times. To see how your portfolio can use this research,

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This article has been corrected. Previously, it stated that a unit of Allianz held three times the amount of troubled mortgage-backed securities than it had in capital and reserves. The statement was based on information Allianz had provided to SNL Financial. Allianz has since corrected the data.

Melissa Gannon is director of insurance and bank ratings for Ratings, formerly Weiss Ratings, where she directs the operations of the company's insurance and bank ratings division.

In keeping with TSC�s Investment Policy, employees of Ratings with access to pre-publication ratings data must pre-clear any potential trade through the legal department, and are prohibited from trading any security that is the subject of an unpublished rating revision until the second business day after the rating is published.

While Gannon cannot provide investment advice or recommendations, she appreciates your feedback;

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