Belgium's biggest insurer AG looks at real estate debt

AG Insurance, Belgium’s largest insurer, is likely to join the growing ranks of European institutional investors planning to invest in property debt, the company’s CEO said during a presentation at the REALTY real estate trade fair in Brussels on Wednesday.

‘Are we going to get into real estate loans? Probably yes – slowly, at the right prices. We will certainly look at the quality of the underlying assets and if there is a crisis with the investments then we would look to keep the collateral, which is a different approach from most insurers – it’s more like a real estate investor,’ Antonio Cano said.

The insurer’s property arm, AG Real Estate, has about EUR 5 bn in bricks and mortar, or roughly 10% of the company’s total investment assets under management.

Cano said AG Insurance liked real estate as an asset class because as a long-term
investor it was comfortable with relatively illiquid investments, as its liabilities in terms of life policies are also relatively illiquid. The comparatively high yields obtainable on real estate are also attractive when German 10-year bonds are producing a negative real yield of about 1.4%. He added that he personally expected future Belgian inflation to rise to 4-5%, making the inflation hedging component of real estate appealing.

AG Insurance doesn’t see the capital charge on direct real estate investment of 25% under the Solvency II regulatory regime standard model as a real barrier to property investment, because its own capital modelling places this closer to 20% as it has a higher charge for sovereign bonds, which Solvency II defines as ‘risk free’ despite the eurozone’s government debt crisis.