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Residual Value Insurance

The volatile future value, or residual risk, of capital assets is an exposure which adds balance sheet uncertainty, and which can cause financial dealings to falter, even to fail. This growing class of business, takes in many areas of asset based finance including energy and finance, aviation, rail equipment, manufacturing, industrial and commercial equipment and commercial property.

RVI is an excellent tool to manage and control this residual value risk, when introduced early in the structuring of a financing deal, it can expand sources of funding. In lease deals, it brings benefits to all parties concerned, especially financiers and lessors. A lessee gains indirectly when the insurance lowers the lessors costs and makes previously uneconomic transactions viable.

 

Residual Value Insurance is of benefit to:

  • Any transaction where the payment stream does not repay the full principal amount can benefit from residual value insurance.
  • Securitisations that include residual value insurance (third-party guarantee) can enjoy the benefit of reduced reserve accounts and / or improved credit ratings by allowing investors to rely on insurance instead of the realisation of the underlying asset.
  • Organisations with significant capital assets can use the insurance to bring certainty to the balance sheet by guaranteeing the market value of those assets at a future date.
  • Financiers will benefit from the insurance as it removes asset risk from the transaction and their balance sheet.
  • Increase the final ("balloon") payment to be made at the end of a finance period, thus reducing cost, increasing cash flow, and supporting higher debt to equity ratios.
  • Many financial structures would benefit from a reduction in asset risk: operating leases, sale and lease-back and credit tenant leases are often supported by this insurance product.

JLT has a team of specialists who focus exclusively on these types of transactions, we provide a more proactive, responsive and trusted service. RVI is a natural complement to our credit and political risk insurance services. JLT has been a leader in political risk insurance for many years and our clients benefit from this association.

 

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