TALLINN – Building a modern headquarters seemed a good idea for two Estonian insurance companies until the situation on the real estate market changed and the law on insurance was amended. The 12-story building is not now a symbol of prestige but rather of a looming bankruptcy.
The insurance company ASA Kindlustus and the life insurance company AB Elukindlustus, both part of the AB Insurance Group, have invested almost 18 million kroons ($1.2 million) in the construction of the 12-story building slated to become their headquarters.
AB Elukindlustus has invested almost 24 percent of its portfolio or 9.25 million kroons into the bonds of Maakri Ehitus, the construction company managing the project, and ASA Kindlustus has invested about 18 percent of its reserves or 8.8 million kroons.
The companies have also borrowed 44 million kroons for the project through third companies. One-third of the total construction cost (130 million kroons) was to be financed by the AB Insurance Group and the rest by Uhispank. When the real estate market went down, the insurance company lost interest in the construction of its headquarters and stopped financing the project.
The prices dropped from almost 300 kroons per square meter to 200 kroons per square meter, said Margus Mets, spokesman for AB Insurance.
Now the court has started bankruptcy proceedings against Maakri Ehitus. Leonid Apananski, AB Insurance Group council chairman, said the company may lose its investments due to the bankruptcy proceedings.
Amendments to the law on insurance came into effect June 1 which made the AB Insurance Group sell its bonds bought from Maakri Ehitus and from other second degree deposits and investments.
According to these amendments neither ASA Kindlustus nor AB Elukindlustus may invest its insurance technical reserves anywhere else but in fist degree mortgages or deposits in commercial banks of Estonia or OECD A Zone countries which include almost all EU countries
The AB Insurance Group should have sold its investments into Maakri Ehitus bonds by the time the law came into effect. The company had three months to sell its bonds, but Mets said the company could not find a good deal.
The company asked for a period of grace from the Insurance Supervisory Body for the redeposition of reserves and is planning to regulate its reserves with a new owner. Mets said the present owners are not interested in investing more into the company and they have been looking for new investors since autumn last year.
The company signed an agreement with the new majority owner June 17. According to the agreement the buyer must replace the technical reserves which do not comply with the law on insurance companies with reserves that are in compliance with the law.
Many competitors doubt that any investor would be interested in buying the unsuccessful investments of the insurance group although the group has already held negotiations with several potential investors. The company has promised to disclose the new investor by July 1.
