Insurers Will Cut Commercial Investments
In a move likely to aggravate the country’s deepening real estate slump, many major insurance companies say they will sharply reduce or even halt their investment in commercial mortgages next year.
The trend could hurt banks, many of which are already mired in bad loans, and further tighten real estate credit. Insurers often take over construction loans from banks and provide long-term financing once work on the properties that secure those loans is completed and the buildings are occupied.
One major insurer, Travelers Corp., which in just the third quarter took a staggering $650-million reserve for real estate losses, said it expects to do no such real estate investing in 1991.
“At this point, we don’t anticipate originating any new business next year,” Dan Kaferle, a Travelers spokesman, said Wednesday.
The company did $1.3 billion in new real estate business in 1989. Those loans were overwhelmingly commercial mortgages and agricultural loans, Kaferle added.
The nation’s biggest insurance company, Prudential Insurance Co. of America, based in Newark, N.J., said it will slash its commercial loans by one-third in 1991 from this year in response to the troubled real estate environment.
The company, with consolidated assets of $165 billion, did between $3 billion and $3.5 billion in such loans last year and currently has a commercial loan portfolio of about $22 billion, said James Longo, a spokesman.
“We’re just going to be more selective,” Longo said.
Also, Massachusetts Mutual Life Insurance Co. of Springfield, Mass., which has run into financial problems recently, said it has declared a “moratorium” on new mortgage lending until returns in that business turned up. However, a spokesman, William Persch, said Massachusetts Mutual would buy existing mortgages from other companies.
Although he could not immediately obtain the figure for 1990, Travelers’ Kaferle said his firm’s new real estate business was lower this year as the company has tried to limit its involvement in the troubled real estate market.
The Hartford, Conn.-based insurance giant’s real estate investment portfolio is $17.3 billion, mostly commercial loans rather than directly owned properties, Kaferle said.
Another major participant in the national real estate market, Aetna Life & Casualty Co., also said it would reduce its real estate investment by an undisclosed amount next year.
John Hawkins, an Aetna spokesman, said, “We’re going to be a little more selective about the types of commercial projects we’ll get involved in and we’ve got less that we want to commit to such projects in the coming year.”