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#521 Mike K.

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Posted 02 July 2018 - 09:43 AM

Cashing out and purchasing other assets that are also at their highest price points is not a winning game, unless ICBC has plans for a new office complex and is disposing of the existing facility in order to finance another and potentially consolidate its operations.

 

Whatever monies are generated through the sale of the building will eventually fall short of future lease commitments, and those commitment will be paid for by rate payers


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#522 Bob Fugger

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Posted 02 July 2018 - 02:02 PM

No. A generalization like that doesn’t hold water. I could outline an infinite number of scenarios demonstrating how an asset sale, vendor leaseback and subsequent capital investment to disprove what you just wrote. Here’s just one:

If I sell an asset for $1M in Victoria, buy two assets for $500k in Penticton (or Winnipeg, or Wisconsin or Zimbabwe), in 5 years they are worth $1M and I paid let’s say $500k over that period in rent, that’s still a return of $0.5M (if you exclude the initial $1M investment as profit).

On top of that, the $1M Victoria asset has already been depreciated so there’s no tax deduction available any longer, but the lease payments are fully tax deductible as a current expense. So that $500k in profit is actually worth more because of the rent expenses I’ve been deducting along the way.

#523 Mike K.

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Posted 02 July 2018 - 02:28 PM

If things worked like that we’d all be rich, and if ICBC had a handle on its finances my insurance rates would be dropping, not rising.

Do we know for a fact ICBC plans to re-invest the relatively measly sum from this sale into real-estate, or will it use the few million dollars to help balance the books?

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#524 Bob Fugger

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Posted 02 July 2018 - 03:01 PM

I never suggested that it’s a sure thing. But just like every insurance company, they have an investment portfolio and a team of finance professionals that manage money.

As for knowing for a fact if it will reinvest the capital or put ornaments towards its bottom line, it’s emphatically the former. Firstly, because of insurance industry legislation that requires a certain amount of solvency and capital reserves. And secondly, ICBC doesn’t need to sell the farm to pay for the cattle because it will no longer be in massive financial hole because of how minor injuries will be treated come April 1, 2019.

ICBC’s financial situation came about primarily because it’s the last full tort jurisdiction in North America and relatedly, because of how it handles claims (and claimants) has resulted in a massive uptick in represented claims (ie claimants lawyering up), which are more complicated and therefore more expensive.
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