International Insurance Consultants

Contact: Mark Standen

Provides asset owners and their financiers with asset value certainty at a predetermined time in the future.

Residual Value Insurance

An invaluable means of balancing exposures in volatile markets and removing asset risk from the balance sheet. RVI can be a key element of a structured finance solution. RVI guarantees the value of income producing core assets at a specified future point in time.

Residual Values Insurance is an invaluable tool for managing and controlling the residual value risk of assets such as:

• Marine & Energy
• Aviation
• Rail Equipment
• Manufacturing, Industrial and Commercial Equipment
• Commercial Property
• Auto vehicles

We illustrate this protection in the form of downside protection to lenders, shipowners and lessors against the volatility of vessel values.

The borrower is typically a single-purpose vessel owning company, whose sole asset is the vessel. Once any benefit of charter income has fallen away, at the end of the loan term, the borrower and the lender are relying on the value of the vessel to be sufficient to repay any outstanding loan balance (usually a remaining limp-sum, or “balloon” balance).

By insuring the balloon amount with a residual value insurance policy:

• Both the borrower and the lender have protected themselves against market risk;
• The market risk has been transferred to a rated insurer and;
• Any upside in the vessel’s value is still there for the borrower’s benefit;
• It may be possible to negotiate a lower interest margin for the loan, in return for the additional security provided by the RVI cover.

A recourse loan will typically be structured and secured in the same way as a non-recourse loan, but with the addition of a guarantee from the parent company. A reduced RVI premium is likely to be negotiated when the degree of recourse reduces the likelihood of reliance upon the market value of the vessel alone.

Where a lender is relying in the value of the vessel being sufficient to repay a balloon amount, on maturity of the loan, the balloon will be set at a level which reflects a conservative percentage of the expected fair market value, or book value, of the vessel.