As if insurers weren't depressed enough about the low returns they've been collecting on investments, along comes QE3 to dampen things even more. To add insult to injury, Moody's lowered its outlook on the industry late last week, citing long-term low interest rates as the primary culprit behind the downgrade.
Don't think that these companies are sitting around wringing their hands, however. Sick of not making enough money on traditional investments, some insurers are looking to step up their investments in good, old real estate.
Insurers are sniffing out higher returns in property investment
Prudential Financial (NYSE: PRU) has been buying into private real estate for some time, having invested $500 million in these types of funds. The company has recently turned a sharp eye upon the multifamily rental market, as well. Prudential has been bulking up its commercial lending facility by placing two new directors in charge of multifamily loans. The new employees are heavy hitters in this field, having worked at top mortgage-writer Wells Fargo (NYSE: WFC), directing operations in its multifamily mortgage unit before coming to Prudential.
As vacancy rates remain well below the landlord-friendly 5% mark, the giant insurer sees healthy profits continuing for some time in the apartment rental sector.
Metlife (NYSE: MET) has also noticed the value of real estate investment, having extended a $50 million line of credit to a real estate investment trust that concentrates in agricultural land deals. The life insurer has hit some speed bumps lately, failing federal stress tests earlier this year that have prevented it from hiking its dividend. Metlife has been trying to free itself of federal oversight by selling its online banking arm to General Electric (NYSE: GE), but it has been stymied in its efforts to do so by regulators who have been questioning GE's plans for the unit.
Industry giant AIG (NYSE: AIG), once the proud owner of a $24 billion real estate empire before the 2008 crash, has stopped divesting itself of its holdings and is currently planning to add more. Finding itself once again on terra firma, the company is calling up old contacts in the multifamily housing arena in order to kick-start some lucrative deal-making. Though AIG formerly held gems like a Vermont ski lodge in its portfolio, the insurer is now concentrating on the lucrative apartment market.
The floundering housing market has made rental units a real goldmine, and these insurers are astute in taking advantage of the situation. As insurance CFOs search for more profitable investments in the next few years, the multifamily sector looks to be a good bet to survive the low-interest rate doldrums.
Although the deal hasn't solidified yet, the acquisition of Metlife's online banking unit will be a feather in GE's cap. Want to find out about other opportunities, as well as risks, currently facing General Electric? I invite you to access our premium report, which will give you an inside look at this top-notch company. This offer comes with a full year of updates, so click here to learn more.