The most recent such sign for the life insurance firms was a Goldman Sachs research report that came out on Monday, warning that Prudential Life Insurance Co.'s exposure to mortgage-backed securities and real estate loans could trigger anywhere from $1 billion to $4 billion in impairments – essentially making a serious dent in its excess capital. Met Life, it said, could realize between $1 billion to $6 billion in similar impairments, although these losses would be mitigated by the $2.3 billion raised in new capital.

The concern by some is that life insurance companies may dial back their appetite for real estate investment even further, especially as such weak spots in their portfolios become apparent. "At the beginning of this year a lot of insurers decided that the risks in the market meant that they would cherry pick the best deals and then withhold investment until the market improves," one source tells GlobeSt.com. Next year promises to be even worse, this source says. .

Indeed, many feel that insurance companies are all but through lending for the year. "For the rest of 2008, life insurance companies' investment in real estate will be very limited," Andrew Oliver, EVP and principal with Cushman & Wakefield Sonnenblick Goldman in New York City, tells GlobeSt.com. "Most insurance companies have not used up their real estate allocation for this year -- however they are not under any kind of mandate to invest a certain amount, so they will put the money out next year if they think it is advisable."

Still, though, fears of an industry exit are overblown – at least for the moment. For starters, there are plenty of signs that life insurers remain active and interested in real estate as an asset class. Earlier this week, Guardian Life Insurance Co. of America announced it invested $30 million for its second equity stake in Beverly Hills, CA-based Kennedy Wilson. The New York City-based life insurance firm previously invested $23.25 million in a Publishing SystemKennedy Wilson apartment acquisition in San Jose, CA. Also, this month, in Thompson, NY, Concord Associates LP received a $250 million loan from Union Labor Life Insurance Co. Publishing Systemfor its $1-billion Concord Resort, and ING Clarion Partners secured $97.5 million to Publishing Systemrefinance a seven-property, multi-state industrial portfolio from a life insurance company. In August, UBS Realty Investors secured first mortgage financing totaling $206.99 million for six, class A multifamily communities through MetLife Real Estate Investments on behalf of the Trumbull Property Fund; Horizon Properties secured 10-year, fixed-rate $74 million, forward permanent loan for the 384,000-square-foot corporate headquarters of CONSOL Energy in Canonsburg, PA., through Nationwide Life Insurance Co.

At that same time, some insurance firms have hastened to assure shareholders and regulators that their portfolios are positioned well to ride out further troubles. After Lehman Bros.' bankruptcy, Netherlands-based Aegon released details of its exposure to Lehman Bros., stating that during 2008, Aegon actively lowered its exposure to Lehman Bros. by approximately 20%. As of September 12, Aegon had a total general account fixed income exposure of EUR 265 million (approximately $340 million), it said, and the ultimate effect of a default on Aegon's excess capital and net income would be substantially lower than that amount as a result of a variety of factors, including taxes and recovery values as well as counter party exposure through derivatives contracts and securities lending transactions.

The overriding argument, though, for life insurance companies' continued presence in the real estate investment community is that fact that allocations for these firms do not easily change overnight. "I think insurance companies will continue to lend in real estate," Oliver says. "It is an allocation that has been there for many decades and will continue – albeit in a much more conservative manner, at least until the credit markets settle down."

Insurance needs a very safe long-term investment with good cash flow to balance their assets against liabilities, agrees William Gamble, a consultant specializing in emerging real estate markets. "A temporary bear market in real estate will not disqualify it as an asset class," he tells GlobeSt.com. "As Will Rogers pointed out, they are not making any more land. With the possibility of infrastructure investing, which is subject to the vagaries of law and regulation, over time there is probably nothing safer."