|RESIDUAL VALUE INSURANCE|
|A Residual Value Insurance(RVI) policy indemnifies the insured against loss that might occur if the sale proceeds of a properly maintained asset are less than the asset's insured value at a specific point in time RVI can be specifically tailored to meet client's numerous and diverse objectives.
This coverage has been designed specially for the financial institutions, leasing companies and equipment manufactures to insure a broad range of assets including: aircraft, vehicle, commercial equipment and real estate. The following are the most common utilization:
|Asset Value Risk Management
Residual value insurance can be used to remove asset value risk from a lease or loan portfolio. The 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 residual value of their products to third parties.
|Financial Accounting Standards Board Statement No 13 (FASB-13)
Represents nominal risk and is used fir financial accounting purposes. Residual Value Insurance can be used to accelerate the growth of a leasing company's earnings and capital by allowing leases to be booked as Direct Financing lease rather than as Operating lease. This aggressive accounting practice allows the leasing company to realize the income generated over the entire term of the lease in the first year.
|Securitization of Lease
Using residual value insurance, lease securitizations can be eliminated on the public and private markets by converting the residual value risk into a rated credit risk.
|Reverse reequirement and Capital Allocation Management
With residual value insurance, residual value risk in a lease can be converted to a credit risk without losing the spread if its earning assets, This can allow regulated financial institutions to convert "open ended" asset risk into finite insured value risk which can carry a more favorable reserve requirement on a lender's statement.