Garnet Capital Advisors Blog

August 22, 2016

Insurance Companies As Lenders and Diversified Service Providers

Insurance companies, once adhering to conservative investments of policy-holders' capital, are increasingly diversifying and moving into becoming financial supermarkets.

There are two dominant factors underlying the move. The first is rules placed on banks in the wake of the 2008 fiscal crisis, which resulted in tighter requirements on lending. The second is the historically low yields on government bonds, which were once insurance companies' predominant investment. U.S. 10-year bond yields, for example, currently stand at 1.6%, and the bonds of some European nations have fallen into the negative range.

Diversification is partly driven by concerns about low bond yields.

As a result, insurance companies are now seeking higher returns by offering loans. Companies like MetLife and American International Group (AIG) have moved into the markets for home mortgages, car loans, student debt, small business loans, and renewable energy financing. The Federal Reserve reports that insurance companies have increased their mortgage loans alone 50% over the past 10 years, to a current total of $450 billion.

MetLife's Chief Executive Officer Steve Kandarian has indicated that his company's mortgage financing, in particular, gives MetLife "predictable income streams."

Insurers are increasingly moving into mortgage loans.

Stability is key for insurance companies. Some of their other forays into broader financial investments, such as hedge funds, caused losses for insurers recently.

Moreover, several are moving into the direct investment of client money. Prudential, MetLife, MassMutual, and New York Life Insurance Co. are developing investment units that will work with clients' investment dollars.

Others, such as Athene Holding Ltd., are investing in subsidiaries that loan to consumers and businesses. It is a part owner of firms engaged in housing loans, commercial mortgages, and lenders to the healthcare field.

Some have called the diversifying insurers "shadow banks" because they are taking on the traditional businesses of banks yet are not subject to Federal banking regulations.

Regulations affect lending. JPMorgan Chase & Co notes that an industry group, the National Association of Insurance Commissioners, proposed rules that are likely to heighten insurers' attraction to lending to the commercial mortgage market vis-à-vis corporate debt.

In June, the Fed proposed new capital requirements to match liabilities and assets held for the long term. In addition, political leaders have noted the need for more transparency - which could lead to increased future regulation.

Help in a Low Interest Rate Environment: A Seasoned Loan Sale Advisory Team Can Advise on Capital Deployment
In a low interest, low margin environment, finding ways to put capital to work can be a challenge for insurance companies. As some act as asset managers and also hunt for investment yield, insurance companies looking to deploy excess liquidity should consider Garnet's performing loan portfolios in the market. These portfolios include, but are not limited to loans relating to: residential, commercial real estate, home equity lines of credit, auto, private student loans, and energy. With a wide array of portfolios available including high quality, loss-protected and sizeable deals, Garnet can help insurance companies in putting cash to work that meets their goals.

Garnet Capital's loan sale advisory team can link insurance companies with other financial institutions that have higher yielding, performing assets.

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