RESIDUAL VALUE INSURANCE

 

Asset Value Risk Management

 

Residual value insurance can be used to remove asset value risk from a lease or loan portfolio. 

Users of the application can range from financial institutions such as banks, insurance companies and commercial finance entities to equipment manufacturers who internally finance or guarantee the asset values of their products to third parties.

External Accounting and Tax Regulation Insurance (FASB-13)

Residual value insurance provides the third-party guarantee needed by lessors to optimize the treatment of leased assets in both the balance sheet and the income statement. It results in the accelerated recognition of income for the lesser and off-balance-sheet financing for the lessee. 

Lease Securitizations

Because of the risks of selling residual exposure into the public securities markets, securitizing equipment leases has been difficult. However, by covering that exposure with rated credit, lessors can securitize their leases efficiently and retain favorable finance-lease accounting treatment. The results are:

  • Increased Advance Ratios
  • Lower Interest Spread
  • Lower Subordination Levels
  • Creation of Bondable Cash Flows from Unknown Asset Exposure
  • Lenders have Pre-approved Limits to Buy Rated "Paper" of Various Ratings may be able to by paper they otherwise could not
  • Lenders  previously  unable to efficiently lend on Uncovered Asset Risk may now lend against Covered Risk

 

Balloon-Note Financing

 

Using residual value insurance, the aversion that lenders and other funding institutions have to asset risk can be overcome by the third party guarantee provided by the insurance. 

Balloon-Note Financing can also assist in the creation of an NAIC 1 rated asset or rightly noted bank asset versus an open asset value rated risk. Balloonnote financing may also enable bank lenders to achieve higher credit ratings on loans for reserve purposes.

 

Operating Lease Structures

 

Using residual value insurance, a lessor's lease portfolio earnings can be accelerated by booking direct financing leases rather than operating leases. 

Operating Lease Structures can also remove asset depreciation from a lessors books.

 

Finite Risk Coverage

 

This coverage is Structured for Non-Standard Levels of Insured Values.




Equity Participation Coverage

 

This particular type of Coverage applies when Insured Levels are Between an Asset's Distress and Probable Value. The Insurer receives a Standard Premium plus a Contingent Premium in the Form of an Equity Participation in the Asset's value above the Insured Level. This form of coverage allows for higher values.