Managing Asset Value Risk
Residual value insurance helps companies manage asset value risk by guaranteeing that a properly maintained asset will have a specified value at a future date. This type of coverage ensures asset values, making risk counter-cyclical to inflation. It is an enormously flexible tool with benefits that range from simple risk mitigation to complex financial objectives such as capital optimization.
Residual value insurance is purchased primarily to provide accounting coverage, increased loan to value ratio, and asset value coverage. It has applicability in three major asset areas:
This type of coverage has wide applicability across accounting and regulatory regimes, financing structures, and tax jurisdictions. For example, a commercial equipment lessor in the U.S. might look to meet finance lease accounting standards under FAS 13, while keeping credit exposure to the shortest possible term.
In Europe, a bank leasing operation might wish to reduce the amount of capital Basel II requires it to hold against its lease assets. This would help the firm increase its returns and also meet finance lease accounting standards under IAS-17.
RVI has insured over $59 billion in residuals since 1989. More than $45 billion of asset values insured by RVI have fully matured and come off risk.