Swiss Life Invests in German Nursing Homes to Boost Returns

The German unit of Swiss Life Holding AG, Switzerland’s biggest life insurer, plans to buy more nursing homes in Germany to help boost investment returns.

“We started to buy nursing homes in 2004 and will continue to do so as we are very happy with this asset class,” Stephan Illsinger, chief investment officer of Swiss Life’s German unit, said in an interview in Munich. “As soon as there’s more clarity on capital requirements under Solvency II, I wouldn’t have a problem to double our commitments to this area.”

Swiss Life’s German unit has invested about 100 million euros ($133 million), or 10 percent of its property holdings, in 14 nursing homes in Germany and is focused on non-urban areas near bigger cities. Most of the properties are being managed by BeneVit Holding. The number of nursing homes in Germany has grown to 11,634 in 2009 from 8,859 in 1999, according to statistics by the Federal Ministry of Health.

“We expect returns of about 7 percent from our investments in nursing homes, which exceeds the average return from other conservative asset classes including higher-rated government bonds and residential and commercial real estate,” Illsinger said.

About 1,400 care facilities with a capacity of at least 100 beds in an investment volume of 12.5 billion euros need to be built in Germany through 2030 to meet growing demand from patients, according to research by real-estate broker CB Richard Ellis Group Inc.

Investment ‘Advantage’

The investment market for nursing homes in Germany had a volume of about 295 million euros in 2010, with most of it being made by specialized real-estate funds from companies including Axa Investment Managers Germany, RREEF Real Estate and Immac Holding, according to CBRE, which expects initial net yields of 6.5 percent to 7.5 percent for such investments.

“The advantage of direct investments in nursing homes over investments via specialized funds is that we remain in control of the objects and the quality standards,” Illsinger said.

Swiss Life, led by Chief Executive Officer Bruno Pfister, said last month it expects market conditions to remain “challenging” after second-half profit declined by 30 percent. The Zurich-based company plans to make more savings after reducing annual costs by 404 million Swiss francs ($444 million) since 2009 and cutting 520 jobs in Switzerland.

Swiss Life’s German unit represents about 10 percent of the insurer’s annual premium income. Germany is the company’s third-biggest market after Switzerland and France. Operating profit in Germany adjusted for major one-time items and currency effects declined 36 percent to 58 million euros last year.

“Going forward, we could also imagine teaming up with other insurers in our investments in nursing homes, but we haven’t held talks on that yet,” Illsinger said.