Insurance Companies May Have Real Estate Risk

Some Chinese insurance companies may be inflating the value of real estate holdings to meet solvency requirements, or simply making optimistic valuations based on expected price increases. The China Insurance Regulatory Commission (CIRC) is now conducting audits.

保监会狠揭险企猫腻：叫停借地产重估粉饰报表

Following a series of operational risk warning shouts investment potential risks of debt investment plans, insider trading investigation, the CIRC will once again reaches for the regulation of insurance company investment real estate fields.

Zhengbao reporter recently learned in the interviews, some insurance companies honest play "accounting games", on the pretext of re-evaluation of real estate, or even abuse the fair value, in order to achieve the purpose of enhancing solvency margin. Trick whitewash report the case, but ultimately could not escape supervision "discernment", a squeeze insurance company solvency indicators "bubble" of the action being quietly.

Partially reimburse indicators or inflated insurance firms

As a risk prevention "a bid" solvency adequacy ratio is the core of insurance regulation in recent years. And every quarter solvency indicators, has become the insurance company's ability to continue its underwriting and investment activities, the creation of an important benchmark affiliates. On the importance of the solvency of insurance firms, can be seen.

However, expanding the geographical coverage, high cash price "crazy" pin (1244.40, 0.10, 0.01%) value insurance, staggering decline in the stock market, these factors come together, is constantly "swallowed" the insurance company's capital, cause solvency adequacy ratio declined steadily in urgent need "blood."

Reporters learned that, in the most common short-term capital to shareholders under unsuccessful, some insurance companies through Real Estate (mainly investment property) re-evaluation, the use of fair value measurement methods, to increase capital, improve the level of solvency purposes.

In the industry view, these standards of solvency, does not exclude the presence of unrealistically high, there is the possibility of a bubble. An insurance company chief financial officer, told reporters, according to the new accounting standards for the measurement of investment property, the insurance company may choose one of the two measured at cost and fair value, and once you choose the latter, you can not change for the former.

Select the measurement of fair value in the international insurance industry is the trend. However, the reality is that some insurance companies may even abuse the use of fair value measurement mode, re-evaluate the value of their real estate investments, and ultimately to improve solvency, whitewash the purpose of the report.

An insurance company, for example, said chief financial officer, for example, a real estate project cost is 100 million, the insurance company from time to time on the re-evaluation of this project may be assessed to 200 million, 300 million or more, an increase of capital enhance the solvency level will be reflected immediately. "But this is only based on the expected value under the assumption that real estate, and this does not rule out re-evaluation of the water, which also reflects the assessment of the domestic real estate market turmoil, which led to a hole can be drilled."

Irregularities or absence of a means in itself, but the risk can not be ignored hidden behind: the wealth on paper to cover up the real assets of the insurance company level, this indicator does not reflect the true solvency. Real estate prices in the channel, such concerns may fuss; But if real into the downstream channel, the situation is just the opposite, the solvency of the "bubble" will appear.

Regulatory pronged "squeeze bubble"

For insurance firms take advantage of the real estate reassessment whitewash report of the phenomenon, the CIRC has begun to take action.

Yesterday, the reporter learned from authoritative sources exclusively, on the one hand, China Insurance Regulatory Commission recently issued "on the cleanup regulate insurance companies to invest in real estate matters related to the revaluation notice" inside the next, requiring all insurance companies to suspend the fair value of investment property policies to risk prevention; hand, the CIRC will the insurance company solvency of investment property recognized standards for uniform regulations, relevant draft has recently issued.

Investment property usually refers to real estate to earn rentals or for capital appreciation, or both held. According to the newspaper to get the "notice" said that the clean-up and specifications are measured at fair value of investment property, including shares held indirectly through the establishment of the project company or the insurance company directly held by the Property . Insurance companies hold such property shall submit documents to the CIRC to hold each investment property, such as the purpose and intent of June 5.

CIRC will be submitted to the insurance company's investment property itemized audit, accounting standards do not meet the regulatory requirements and solvency, insurance companies will be ordered to adjust the carrying value of the financial statements and solvency report recognized the value and nature of the problem to determine whether to differentiate previous issues of solvency report retrospective restatement.

Currently, the China Insurance Regulatory Commission is amending the solvency of investment real estate assets recognized standards, this work is in the public comment phase. Under the "notice" requirement in the new accreditation standards issued prior to the implementation and completion of this cleanup work, the insurance company shall suspend the fair value of investment property policy and specific requirements: have adopted fair value of investment property, in order to March 31, 2014 as the base carrying amount, no further assessment to confirm the new value; measured using the cost of investment property shall be measured at fair value instead.

From the newspaper to get the "insurance company Solvency Reports Rules - Questions No. 24: Investment real estate," the draft of view: investment property should be in accordance with accounting standards, using the cost model; only exist conclusive evidence that the fair value of investment property can continue to reliably obtained before using the fair value model, while the real estate appraisal agencies have more stringent qualification requirements.

Insiders interpretation that CIRC "two-pronged" move, can play a "squeeze bubble" effect on inflated reimbursement indicators, while the insurance company to take guide rational investment real estate.

"These provisions may have only a transitional regulatory policy, to be the second generation of the life insurance company solvency regulatory system system introduced, will as a yardstick." According to informed sources, according to plan, life insurance companies' compensation generation "standards will In the form of a draft by the end of June, before the end of September to carry out the overall test life insurance industry.