- How can my life company become a LifeComps Participant?
- What are the costs of Participation?
- When is performance data released?
- What are the LifeComps goals and objectives?
- What analysis is included in each quarterly LifeComps Index™
- Which life companies currently participate
How large is the commercial real estate mortgage market as an asset class? How great
a component of that class is held by Life Insurance Companies? What percentage of
the Life Insurance Company market is represented in LifeComps?
Any life insurance company may become a LifeComps Participant, provided
they become a party to the LifeComps Organizing Agreement and can provide updated
commercial mortgage loan performance data quarterly in the form and to the extent
then currently required for the calculation and publication of the index. Please
contact Joan Freedman,
Sagamore Advisors, Inc., for information on membership.
LifeComps Participants pay a pro-rata share of annual operating expenses
for the maintenance of the LifeComps Index™. New Participants
pay a fee which contributes to the development of enhancements to the LifeComps
Index™. Please contact
Joan Freedman, Sagamore Advisors, Inc., for the most current fee schedule.
Data is release quarterly, 60 days after the end of each quarter in accordance
with the LifeComps Antitrust Compliance Guidelines.
When the real estate recession of the early nineteen nineties began to
affect delinquency rates in the commercial whole loan mortgage market, institutional
investors in those loans had no publicly available industry-wide historic return
data to use to anticipate potential investment losses. Long-term performance
data for competing investment asset classes, such as public bond indices, had been
published for many years, allowing investors to understand the effects of economic
cycles on bond returns.
To remedy this lack of comparative commercial real estate whole loan
return data, five major life insurance company investors - The Equitable, John
Hancock, Northwestern Mutual, Principal Financial, and Prudential Insurance Company
of America - resolved to build the first robust database to capture
commercial real estate whole loan performance data over time, along with that of
the underlying real estate collateral. They have since been joined by Allstate
Life Insurance Company, Connecticut General,
The LifeComps Index™ was created
to provide a quantifiable investment performance index
that could be used to compare returns on life insurance company investments in private
commercial real estate whole loans with those of other investment asset classes,
such as public and private bonds, or equities; and
to serve as a benchmark for privately held commercial real
estate mortgages so that an owner of these whole loan instruments could compare
its investment performance with that of an aggregate life insurance industry commercial
Benchmarking against an index is a standard investment performance measurement
tool and can be used to measure not only the overall relative performance of one
portfolio against another, but also, through attribution analysis,
assess whether the differential in performance is due to the allocation
of assets among subclasses within the portfolio or the selection of
the investments within each subclass.
The maintenance of a database for both loan performance and the
underlying real estate collateral performance supplies the required
data for the long-run correlation of credit losses on the mortgages to the underlying
cycles within the real estate market. For the
first time, the detailed investment performance data that has long been available
to the public bond market will be published for commercial real estate whole loans
in the LifeComps Index™.
Each quarter, LifeComps calculates time weighted total return,
income and appreciation returns, cash yields, and duration adjusted yields, and
performs attribution analysis, delinquency, and basis point loss analysis for each
Participant and for the Aggregate for the total portfolio and for property type,
region, loan size, origination year, duration bucket, and delinquency status sub-portfolios.
Time Weighted Total Rate of Return. Total rate of return takes into account both the income return (interest
payments) and the change in market value of the fixed income commercial real estate
mortgage loan due to both changes in the term structure of interest rates and the
changes in credit quality of the mortgage. Modified Dietz is
an industry standard time weighted return calculation that uses day weighting of
actual transactions to calculate a return.
Mortgage market values are calculated by each Participant and submitted
quarterly. LifeComps uses actual time-stamped mortgage accounting flows submitted
In addition to the basic quarterly total rate of return, LifeComps
calculates an index (9/30/1996 base = 100), a rolling four quarters return (the
last four quarters’ returns are geometrically linked to measure the latest annual
return), a calendar year to date return, a three-year, five year, and cumulative
annualized total return with a quarterly standard deviation. All returns are
calculated for the entire portfolio and for attribute level sub-portfolios for property
type, ACLI region, loan size bucket, duration bucket, year of origination, and loan
Quarterly and rolling four quarters’ cash yields (on time weighted outstanding principal
balance) are also calculated.
Attribution Analysis. In addition to the basic total return and cash yield calculations, LifeComps
performs attribution analysis on both nominal returns and duration-adjusted returns
(returns net of the effects of changes in the term structure of interest rates).
These reports compare each Participant’s returns to those of the LifeComps Aggregate
by attribute classification (primarily by property type and region) on both a quarterly
and an annualized basis by decomposing the return into that component due to the
Participant’s sector allocation effects (the amount of return generated
by the concentrations within each attribute class, for example the proportion of
assets in apartments versus office loans) and that component of return due to
selection effects (the amount of return generated by the Participant’s
relative performance within one class as compared to the Aggregate performance,
for example outperforming the Aggregate return on apartment loans). Attribution
analysis is a standard performance measurement tool.
Delinquency and Basis Point Loss. LifeComps collects data on all mortgage loans that have been foreclosed
within the LifeComps database and periodic foreclosed property performance data
thereafter until the date of its sale.
Delinquency status for every loan in the portfolio is collected
quarterly as are paid to dates and the actual dates of all loan payments.
Quarterly "cradle to grave" updated yield calculations – the overall
yield from the original date of the initial investment through to the final payoff
or sale of the loan or of the foreclosed real estate– will be estimated then compared
to the original promised yield on each mortgage loan to measure total basis point
loss. This loss will reflect credit events, the effects of late
payments or restructures on return, and the performance of the underlying real estate
Joan S. Freedman, Sagamore Advisors Inc., database administrator for LifeComps,
for details concerning the formulas or the data specifications.
There are eight current LifeComps participants: Allstate Life Insurance
Company, The Equitable, Connecticut General, John Hancock, Nationwide, Northwestern
Mutual, Principal Financial, and Prudential Insurance Company of America.
According to the latest Federal Reserve Flow of Funds data for third quarter 2014, the overall commercial mortgage market (including multifamily) is approximately $3,323.2 Billion of which $351.3 Billion (10.6%) is held by Life Insurance Companies.
LifeComps Participants currently represent about 28% of the total Life Insurance Company held commercial mortgage market, with approximately $98.664 Billion principal balance in 4,582 loans at September 30, 2014.