Insurers that invested heavily in mortgage-backed securities are now feeing the pain. Life insurance units at Munich, Germany-based Allianz SE, Allstate Insurance Co. and Toronto-based Manulife Financial held more risky mortgage assets than capital and reserves at the end of 2008, making them more vulnerable to loan defaults, according to TheStreet.com.

The 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, says Fitch Ratings.

Fifteen of the top 20 life insurers had more commercial mortgage-backed securities than capital and reserves. Five of those companies held more of the riskier bonds, the ones rated “A” or less. They were Allianz Life Insurance; 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.

Allianz Life Insurance, which holds three times more of the lower-rated securities than capital and reserves, might be the most vulnerable. The company had $2.1 billion of capital and reserves, and $6.9 billion of the less-desirable issues at year end.

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 that entire amount is invested in “AA”-rated or “AAA”-rated bonds.

Standard & Poor’s projects that securities originating between 2005 and 2007 will perform the worst, with potential lifetime losses rising above 10%, according to Forbes. S&P is running reviews of all commercial mortgage-backed securities it has rated to determine which ones are most susceptible to increasing defaults and losses. As part of the additional review, S&P will consider property financial performance, delinquent loans and credit enhancement levels in determining potential losses on the securities.