Insurers feel pinch on funding alternative commitments

Updated with corrections

Insurance companies had less cash available to make capital calls by their alternative investment managers in the third quarter than they had at the same time in 2008, according to new analysis by NYPPEX Private Markets.

Still, insurers have more liquid assets to pay unfunded commitments than other types of institutional investors, said Laurence G. Allen, managing member, NYPPEX LLC, a global securities firm in Greenwich, Conn., specializing in secondary private market advisory, trading, principal investments and research.

“In 2010, many institutions will need to increase net liquidity balances and create reserves for their next six months of expected capital calls,” he said in an e-mail response to questions.

According to a NYPPEX analysis of 10 large insurance companies, the ratio between the companies' net liquidity to unfunded commitment ratios declined to 2.02 times the commitment amount as of Sept. 30 from 4.84 times on June 30 and 3.97 as of Sept. 30, 2008.

“In general, insurance companies' net liquidity balances are significantly stronger than other institutions,” Mr. Allen said in an e-mail. Net liquidity balances compared to unfunded commitment ratios was 0.11 times for pension funds, 0.27 times for endowments and 0.17 times for foundations, on average as of Sept 30, 2009.

There are exceptions. Liberty Mutual Holding Co. Inc. made $488 million in new commitments in the year ended Sept. 30, 2009, he said.

Overall, insurance companies have put making new alternative investment capital commitments “on hold” and are likely to maintain that in 2010, he said.

“Insurance companies need to determine the level of losses from their commercial real estate and loan portfolios before making a significant amount of new capital commitments to private equity funds,” he said an e-mail.

NYPPEX defines net liquidity as a limited partner's ability to make capital calls without selling marketable securities or issuing debt.

The insurance companies that saw their net liquidity to unfunded commitment ratios decline the most were Allstate Corp., MBIA Inc. and CNA Financial Corp., according to the NYPPEX report.

The 10 insurance companies' unfunded commitments also declined an average of 3.2% for the quarter and 11.6% for the 12 months ended Sept. 30, to $19 billion, the report noted. Liberty Mutual Holding Co. Inc. was the only insurance company that increased its unfunded commitments in the year, increasing 12% to $2.3 billion.

During the same 12 months, NYPPEX estimates the insurers' investment portfolio market values increased an average of 9.5% to $1.197 trillion.