2014-06-10

183% Becomes -87% and Dragon Life Is Suspended By Regulators

That was quick. Last week I posted 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.

Yesterday, Dragon Life was told it cannot take new business and the company faces penalties and fines. The firm reported having a solvency adequacy ratio of 182.7%, but in reality it was negative 87%. There are 15 firms using fair value accounting, as does (did) Dragon Life, which could mean this is the tip of the iceberg. The firm's actual capital at the end of Q1 was negative ¥800 million. Last year, it invested ¥1.1 billion in real estate and by year end, it valued those investments at ¥2 billion.

CIRC is working on changing the accounting rules and this audit is aimed at cleaning up company books before the rule change.

-87.08%变182.7% 正德人寿虚报偿付能力遭查处
Also solvency lost relative Nobuyasu Life is just being suspended new business conduct, Masanori Life Insurance Regulatory Commission this time he was subject to heavy penalties, in addition to new business development, qualification and also to stop the creation of several business branches.

China Insurance Regulatory Commission recently sent a letter, saying the site inspection found Masanori Life "inflated" solvency. An insurance analyst at Shanghai on Southern reporter said, "Now the insurance companies are keen to invest in the real estate market due to different standards of real estate assessments, access to a large, easy to hold as an investment real estate company overstating profits and adequate solvency regulation Tools rates. "

Including Masanori Life, Life Insurance, Taikang Life Insurance, Union Life, etc., there are currently 15 companies for investment property using the "fair value method" of valuation, Masanori events or tip of the iceberg.

Masanori Life "water" Solvency

China Insurance Regulatory Commission recently issued a regulation this year's No. 8 letter on its website, the exposure of Masanori Life through the "government subsidies" and "other receivables" project inflated real capital behavior. CIRC said that after deducting violations recognized "government subsidies" and "other receivables", Masanori Life actual capital at the end of 2014 a quarter - 8.0844 yuan, -87.08% solvency ratio, which belongs to reimburse capacity is insufficient companies.

The regulators increased the punishment, not only suspended the CIRC Masanori Life's new business development qualifications, also suspended Masanori Life qualifications additional branches, in addition, also suspended Masanori Life new shares, unsecured non-financial corporations (companies ) bond, equity, real estate and financial products. If Masanori Life on June 30 failed to improve solvency, the CIRC will take further regulatory measures as appropriate. In this regard, the responsible person Masanori Life Southern reporter said, they will not make any response on the matter.

"Now insurance companies are keen to invest in the real estate market due to different standards of real estate assessments, greater access to wealth on paper to hide the risk level of real assets." Southern Reporter above analysts said.

Regulatory concerns about real estate risk

In fact, the management has long been a concern to this issue.

June 5, China Insurance Regulatory Commission announced the "clean-regulate insurance companies to invest in real estate matters related to the revaluation notice", submitted to the insurance company investment property measured at fair value itemized audit and accounting standards do not meet the solvency ability to regulatory requirements, will be ordered to adjust. Investment property usually refers to real estate to earn rentals or for capital appreciation, or both held. An insurance information management person in Shenzhen told reporters the South, all the insurance firms are faced with the review of investment real estate, including the fair value of each investment property to determine the basis of assessment issued by such agency reports.

The sources said, "" notice "introduced the background is part of the company's major real estate valuation is too high, some companies even reach about 5-10 times, so that the benefit of being able to improve the solvency adequacy ratio, but deviate from the subject's own values. Moreover, for various real estate valuation insurance firms different attitudes, there is no lateral comparable. "

Indeed, the scale of the recent real estate investment to maintain rapid growth. End of the first quarter of this year, the scale of investment property insurance institutions 75.487 billion yuan, an increase of 96.22% over last year.

Currently, all 33 insurance firms have investment real estate company behavior, including Masanori Life, Life Insurance, Taikang Life Insurance, Union Life and China Life, including 15 companies using "fair value method."

Look from the 2013 Annual Report, Masanori Life last year to 1.12 billion cost of investing in real estate, has been added to the end of 2 billion valuation. "The re-calculation of the solvency of the company, Masanori Life capital shortfall will be even greater, perhaps to seek shareholders' capital Masanori Life imperative. Heavy hand of the regulators, the market does not rule out the alert means." Above insurance analyst said.

Recent real estate stocks frequently placards Life Insurance, Ampang insurance investment real estate last year, more rapid growth of the scale, accompanied by a huge increase in the fair value as well as changes in income. If Ampang Insurance to 15.73 billion yuan at the end of all of the new scale, with changes in fair value gains increased 7.8 times to 6.71 billion yuan; Life Insurance also increased to 10.32 billion yuan by the end of 2012, 12.86 billion yuan at the end of , followed by the fair value gain from 795 million yuan to 1.86 billion yuan, while its net profit of 5.356 billion yuan.

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