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EXPERT SAYS TIME IS RIGHT FOR INSURERS TO SPIN OFF TROUBLED REAL ESTATE ASSETS; ADVISES CREATING NEW ENTITIES TO IMPROVE CASH FLOW

EXPERT SAYS TIME IS RIGHT FOR INSURERS TO SPIN OFF TROUBLED REAL

ESTATE ASSETS; ADVISES CREATING NEW ENTITIES TO IMPROVE CASH FLOW
 LOS ANGELES, July 27 /PRNewswire/ -- Insurance companies being forced to establish reserves against troubled real estate assets should consider spinning off non-performing loans and distressed properties into separate "bad entities," according to a real estate finance expert.
 "Insurers can find some regulatory relief by structuring a new entity to segregate, manage and dispose of troubled real estate assets, similar in concept to the 'good bank/bad bank' structure first seen in the late 1980s," said Stan Ross, managing partner of the accounting firm Kenneth Leventhal & Co. (KLCO).
 Ross said carriers holding significant amounts of troubled assets should start planning now to meet new capital reserve standards that will be phased in beginning at the end of this year.
 "Insurers are taking a hard look at real estate assets that normally would have stayed on the books until markets revived," he explained. "But under new regulations approved by the National Association of Insurance Commissioners, Asset Valuation Reserves have to be set aside for these portfolios. The reserves required to meet risk-based capital guidelines may be too much of a drain on the balance sheet," he added.
 "The time is right for these assets to be packaged as collateral for offerings of real estate securities since the market for these is on the upswing," said Ross. "Backed by solid cash flow analyses and property market forecasts -- and significant cash reserves -- these assets can attract investors," he explained.
 Setting up a "bad entity" can increase a carrierUs cash flow by cutting down on loan servicing, the upkeep on foreclosed properties and other overhead, according to Dennis Yeskey, an insurance industry specialist and principal in KLCO's New York office. "The separate 'good entity' is more attractive to buyers of insurance annuities, policyholders and shareholders."
 According to Yeskey, the insurers will have to mark down the value of any assets moved into the "bad entity." This hit against earnings, however, will be offset by insurance companies not having to reserve against these bad loans, thus freeing up cash for other investments.
 The new entity will ultimately be dissolved as the assets are securitized or sold outright. Proceeds from these transactions are used to either repay the investors in the new entity or redeem stock issued for the entity.
 -0- 7/27/92
 /CONTACT: Francie Murphy of Casey & Sayre, 310-457-3676, for Kenneth Leventhal & Co./ CO: Kenneth Leventhal & Co. ST: California IN: INS SU:


KJ -- LA002 -- 3401 07/27/92 10:02 EDT
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Publication:PR Newswire
Date:Jul 27, 1992
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EXPERT SAYS TIME IS RIGHT FOR INSURERS TO SPIN OFF TROUBLED REAL ESTATE ASSETS; ADVISES CREATING NEW ENTITIES TO IMPROVE CASH FLOW
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