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News Release

London

Insurance sector landscape set to undergo transformation

Jones Lang LaSalle report examines future of the industry


London, 3rd February 2009 – The insurance sector is about to undergo a transformation according to Jones Lang LaSalle’s new report, Insurance: Where Next? Angus Goswell, director of City Agency at Jones Lang LaSalle said; “The financial crisis and economic downturn has already had a large impact on the insurance sector and we expect more turbulence in the short term. With growth likely to be flat at best, industry consolidation and M&A activity is likely to a major driver of portfolio churn. However, those occupiers hoping to consolidate into large buildings in EC3 will find a lack of new grade A supply, particularly in the core, and with no new development starts in the short term, we expect the lack of supply in EC3 to become even more pronounced as we come out of the downturn.”

Mark Lacey, Director Tenant Representation at Jones Lang LaSalle said “Insurance portfolios outside central London will also undergo substantial change over the medium term.  Intensified cost pressure will mean property consolidation is likely to accelerate with groups seeking to reduce the size and number of properties in the portfolio.”

Traditionally, the insurance industry has been highly fragmented, often, leading observers to anticipate future consolidation.  The recent financial crisis and government intervention with insurance giants looks likely to trigger such consolidation, with some industry insiders predicting ‘once in a lifetime buying opportunities’ as troubled insurers are forced to sell assets.

Insurance: Where Next? identifies the following key trends that will shape the insurance sector over the medium term, they are as follows;

Growth is likely to be flat at best over the medium term. 
Headcount reductions are likely in the short term (12-18 months) although due to rationalisation and restructuring programmes undertaken over the last 5 years, reductions are not expected to be as pronounced as in the banking sector.

Regulation is likely to have a big impact on the sector.  Although the form of the regulatory response to the financial crisis is yet to be fully determined.

M&A activity is likely to increase
and will provide a major source of portfolio churn over the short and medium term.

Focus on cost will be intensified
.  However, this is not a new phenomenon for the sector, it has been very cost conscious over the last 5 or so years, restructuring and driving efficiencies.  The pressure to achieve cost savings will only increase in the short term. 

Outsourcing and offshoring has been firmly embraced by the insurance sector over the last 5 years.  An increase in activity is not expected as many relevant functions have already been outsourced or offshored.

The insurance industry has a strong cultural and business attachment to the City of London
.  However it is keen to keep a lighter footprint due to costs, often moving back office functions outside London.
 
The economic climate will drive property consolidation.  This will affect the City of London, however, as many functions have already been moved out of the City, regional UK locations are likely to face a higher chance of consolidation.

The intensified focus on cost will drive insurers to use their space more efficiently.
  This will mean reduced desk allocations, more flexible working and hot-desking.  Any means to ‘sweat’ assets further will be considered.
 
Technology will aid more efficient space utilisation, but large scale changes in technology are unlikely to impact the sector and its real estate footprint in the medium term.

Insurers who wish to consolidate or rationalise their premises in the City of London
will find that market conditions over the next 18 months will present opportunities for the occupier to upgrade space on attractive terms as the market softens.

Those hoping to consolidate into large buildings in EC3 will find a lack of new grade A supply, particularly in the core. 

Insurance portfolios outside central London will also undergo substantial change over the medium term.  Intensified cost pressure will mean property consolidation is likely to accelerate with groups seeking to reduce the number of properties in the portfolio.