LifeComps FAQs
- 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™ report?
-
Which life companies currently participate 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 Michael
Mannix, Director, 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 Michael Mannix, Director, 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, and
Nationwide.
The
LifeComps Index™ was created in 1997
-
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 mortgage portfolio.
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 by Participants.
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 delinquency
status.
Cash Yields.
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
collateral.
Please contact
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 2009, the overall commercial mortgage market (including
multifamily) is approximately $3,434.6 Billion of which $310.1
Billion (9%) is held by Life Insurance Companies.
LifeComps Participants currently represent about 26% of the total
Life Insurance Company held commercial mortgage market, with
approximately $81.57 Billion principal balance in 6,039 loans at
December 31, 2009.
