Insurance firms are stepping into the void left by banks, and are expected to increase their lending to property companies to £5.5bn by 2017. Jobs are emerging as more firms enter the sector and existing players increase headcount.
So far, there are only a handful of insurance firms indulging in real estate lending. These include Axa, AIG, Aviva, Legal & General and Prudential. This looks set to change; according to a new report from DLA Piper, which surveyed 20 insurance company executives, more firms are likely to draw on their annuity funds in order to lend in commercial real estate (CRE). They anticipate annual lending by insurance firms to increase by over 25% by 2017.
“We expect insurance groups firmly to establish their position as lenders, and once they have put in place the requisite in-house infrastructure and expertise, insurers’ provision of CRE lending should continue to expand into the market recovery,” says Simon Cookson, partner and UK head of real estate at DLA Piper.
Recruiters tell us that a number of insurance firms are currently hiring in this area, including Aviva and Prudential, as well as life insurers like Canada Life and MetLife. Unfortunately, though, until more firms become active in real estate lending, any recruitment is unlikely to be particularly voluminous.
For a start, teams in this area are typically small – between five and ten people – and the DLA Piper report also suggests that larger insurance firms already have in-house property expertise, so moving to commercial lending is not a “complete leap into the unknown”.
One reason for increased recruitment, however, is the fact that once a senior deal-maker is hired, they often look to build their own teams within their new employer, which creates further churn in the job market, suggests John Lenz, director of real estate-focused headhunters, Caravel Search
“Insurance firms are hiring from three backgrounds; deal origination, counterparty credit risk and transaction management to work with clients to assess their needs and ensure their credit-worthiness,” he says. “Primarily, people are being hired from the banking sector, and very often they’re being headhunted for their expertise. It’s important for people in this sector to ensure they network, since most recruitment comes from direct contacts.”
Clearly finding talent is a concern for insurance firms looking to move into the sector. One of the barriers to entry cited by the DLA Piper report was the need for greater skills and expertise in-house. Some firms may instead choose to outsource investment management to external companies, which would increase costs.
Bringing these roles in-house is not particularly cheap, however, and they can pay well. Lenz tells us that an MD should expect £150k plus the possibility of a 100% bonus, VPs earn £100k and a 75-100% bonus, while associate positions pay £60-70k.
Most insurance groups are going to look mainly to senior debt financing rather than mezzanine finance, and will focus their efforts on high quality properties in central London or possibly on student accommodation on deals worth £50m or above, suggests the report.
Mark Wood, ex-Axa Equity & Law CEO and ex-Prudential Financial UK and European chief, told the report: “It is going to be a sub-division of the insurance industry that will drive growth. It won’t be something that’s uniformly evident across all insurance companies.”