It would seem that ungeared funds my be treated as if the assets were held directly, the 25percentage write down gonna be applied. It will appear that the equity shocks must apply, for geared funds, the position is less clear. Whether using the standard models or an internal model, clearly insurers and fund managers need to know whether funds should’ve been treated as transparent or as equity investments. With low levels of gearing and core, for an openended vehicle, ‘low risk’ underlying assets, the transparent treatment would seem most appropriate. On p of this, real estate funds cover a broad spectrum and that going to be reflected in the regulation. You should take it into account. As does the way in which they are financed, the nature of the investment vehicles varies considerably the amount of gearing and indeed the nature of the underlying investments.
At the other end of the spectrum, a closed ended ‘real estate’ private equity fund with high levels of gearing and underlying assets with significant operating risk is difficult to distinguish from any other kind of private equity fund.
Currently the proposal is that the shock to be applied to direct real estate investments is 25percentage from a starting point that the assets are carried in the books at market value.
Much of the real estate industry attention has focused on the amount by which insurers need to write down the value of their investment assets under the standard model. Hundreds of larger insurers are expected to seek permission to use an internal model, that could result in a lower write down, in order to add to the uncertainty.
Therefore this may take some amount of time as the approval of internal models rests with local country regulators. While Zoning regulations loosened restrictions on accessory dwellings throughout the city, next year expect more opportunities for homeowners to add an income unit to their property, in September 2016.
Standard model requires that for loans secured by a mortgage, the value of the collateral is written down by the standard shock. Besides, the 25 market shock also affects the way that real estate debt is treated in the books of insurers. Therefore, this potentially makes secured real estate lending a more attractive proposition than direct real estate investment. I’m sure that the most obvious option must be to allow insurers to decide on a case by case basis whether to treat an investment in a real estate vehicle as transparent or equity. Consequently, defining some type of segmentation through regulation is unlikely to be successful. Basically, their efforts have only been partially successful and it will seem unlikely that the insurance regulator will be better placed to come up with a sensible approach. Quite a few eminent figures and organisations in the real estate industry have attempted to adequately define different fund styles and strategies throughout the last decade. Solvency I will have an impact not only on the insurance industry but on the sectors in which it invests.
Here, John Forbes, Partner at PwC, offers a view of Solvency I from the perspective of the real estate industry.
In April, the Investment Property Databank published a study on the impact of Solvency I on real estate investment.
With that said, this study was funded by a consortium of seven key trade bodies, any supporting a sides of insurance company investment in property and more broadly. I’m sure that the real estate industry thinks the proposed shock is current uncertainty regarding Solvency I is causing the insurers to delay the deployment of capital. Generally, as do pension funds that may also in due course fall within the framework of Solvency I, Although real estate as an asset class represents only a small proportion of the tal balance sheet for insurers, for the real estate industry, life insurers represent a major element of the ‘longterm’ investment capital in the market. Nevertheless, for the real estate market, the anticipated delay is prolonging the uncertainty without adding clarity.
Life insurance companies are major investors, directly and indirectly, in real estate as an asset class.
It going to be noted that these shocks are applied to the net value of the equity whereas the 25 for property is applied to the gross value before gearing.
Equity shocks are also adjusted determined by the regulator’s view of the state of the market at the time, through the mechanism of the dampener. It did little to address the continuing concerns of the real estate industry. In addition to clarified on loads of transitional and technical matters, the publication of Omnibus I in July all confirmed a delay in the implementation of Solvency I until 2014. Areas just like the impact of the property shock under the standard model and the treatment of investments in funds continue to worry the industry. Within this spectrum, there’re funds that have a broad range of characteristics, a bit of which will suggest one treatment and some the other. Choosing either look through or an opaque approach and applying it to all real estate funds my be highly inappropriate given the spectrum outlined above.