03/06/2009

Many Insurers Halt Lending as Crisis Widens

More than a dozen large insurance companies have suspended lending for the foreseeable future - perhaps the entire year.

The list includes industry giants Aegon, Allstate, Hartford Life, Northwestern Mutual and Principal Life, according to loan brokers and other lending sources.

Their withdrawal removes billions of dollars in lending capacity from a market already short on credit. As recently as late last year, many of the companies were saying that they expected their 2009 originations to be reasonably strong, albeit down from the 2008 level. But the worsening financial crisis has taken a big toll on insurers' mortgage, commercial MBS and property portfolios, curbing their lending appetites.

"We kind of went into the year thinking we would do a certain amount of lending, but the environment is so fluid, it just doesn't make sense to do anything right now," said an executive at a major insurer. "A lot of us are just focused right now on being in a defensive position. We're checking our portfolios and looking for trouble, and a lot of us are finding it. If the situation turns around, we'd like to get back into lending, but right now it doesn't make sense."

Added a commercial banker: "All of a sudden these guys realize they have way too much real estate risk on their books."

The development is a further blow to the lending market. When the CMBS market seized up, portfolio lenders initially remained active, cushioning the impact of the credit crunch. And while some giant players are still willing to write loans, including MetLife, New York Life, Prudential and TIAA-CREF, their ranks are shrinking as the financial crisis widens.

At first, some insurers pulled back by limiting their activity to the refinancing of maturing loans in their portfolios. But now a growing number of companies, squeezed for cash, are telling even those customers to look elsewhere.

The Top 30 insurers originated $56.6 billion of commercial mortgages in 2007 (the last year for which figures are available), according to Commercial Mortgage Alert's annual insurance survey. More than one-third of those companies appear to be on the sidelines, including No. 3 Northwestern ($4.4 billion), No. 6 Allstate ($2.6 billion), No. 8 Principal ($2.5 billion), No. 9 Aegon ($2.3 billion) and No. 10 Hartford Life ($2.2 billion). Others holding back from the market include Nationwide, Genworth, ING, AIG, Sun Life and Protective Life.

In addition, numerous insurers in the next tier have also pretty much stopped lending. "Maybe these [companies] would have done only about $300 million a year in the past, but they're important to the whole system because they were filling a need," said an executive for one national brokerage.

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