Insurance investors have been important players in commercial real estate (CRE) for decades, with the commercial mortgage industry fitting very well as an asset against the liabilities that life insurance companies have. Features like fixed-rate interest and terms of more than ten years benefit both parties.
However, the pandemic, the threat of inflation and emerging global pressures are creating unusual market conditions for insurers, who are forced to generate returns that not only cover claims, but also provide a return to the parties. interested.
CRE has always been a good option for them. In fact, about 11% of insurance industry investments are commercial mortgages, but the profile of those mortgages has changed in recent years in terms of property types and complexity, along with the availability of managing talent and staff. and provides services to portfolios. . In this blog, we’ll take a brief look at how we got to where we are in terms of CRE investment and what insurers can do to keep winning.
A brief summary of how we got here.
The first half of 2022 was the strongest on record for commercial lending, with life companies well above $105 billion pace set last year. In the second half of 2022, price differentials began as public markets flowed into other markets. On the capital supply side, there has been a reaction to rising interest rates rather than the demand for capital, so there is some slowdown in the market as buyers and sellers reassess the value of their properties. . The uncertainty has also led to a slowdown in sales transactions, with the public markets feeling the most.
In the wake of the COVID-19 pandemic shifting more offices to work-from-home or hybrid models, urban office space in the center of the city is significantly less important for many companies, with certain exceptions for very strong growth markets. . On the other hand, industrial investments such as warehouse space and logistics centers are more attractive, while hotels and multifamily seem to be back after surviving a significant stress test.
What should insurers do differently to keep winning with CRE?
We have spoken with some insurers who report that they have moved away from smaller loans in favor of larger, more complex loans. And while the due diligence process doesn’t change, the amount of review does. There may be more guarantees, so there are more appraisals, more engineering reports, more surveys, etc.
With what equates to more complex loan structures, smaller (possibly less experienced) teams to manage it all, and stakeholder expectations that are as rigorous as ever, technology can go a long way toward protecting your performance. To stay competitive, satisfy customers, and meet profitability goals, look for technology that allows you to make optimal use of resources, achieve near-perfect accuracy, and aggregate data from multiple sources while maintaining the ability to scale and pivot as you evolve. trading conditions change.
S&C offers a variety of solutions that can help, from our modern service loan management platform to automation and digital workers that can tackle high-volume, repetitive, manual tasks, allowing you to reinvest the time savings in business activities. higher added value.
If you would like more information on how S&C can support your business lending needs for 2023 and beyond, contact us or download our “Comprehensive Loan Management in One Solution” brochure.
Commercial Loans, Insurance
commercial loans , insurance investment , loan portfolio management