While last month credit insurers faced
up to a future of hardship and downturn, caused mainly by growing
numbers of companies entering administration and not being able to
pay their bills, some of their counterparts in the much-smaller
industry of residual value insurance were, by contrast, distinctly
more optimistic.

QBE Insurance (Europe) Limited said it has seen a “two- to
three-fold” increase in the number of inquiries from lessors
looking to pass on residual value risk.

Nick Hunt, of Lease & Loan Insurance Services Ltd, meanwhile
said he thought it likely that will be an upturn in RVI business as
lessors seek to spread risk, but added that his own company was at
present cautious around seeking new business in this market.

Lease & Loan currently provides residual value insurance,
particularly in the equipment and commercial vehicle sectors.

Historically, it specialised in providing RVI in the passenger
car finance market, but withdrew from the market in the early part
of this decade.

Commenting on the growth in RVI, another insurer said: “The
biggest competition 18 months ago was the banks taking RV risk
themselves. We can say that now, as a result of the crunch, there
are more opportunities for us as RV specialists.”

It is not just traditional RV risk that is being insured in
greater amounts. QBE, for example, rather than paying out on the
shortfall on an RV, occasionally buys an entire asset with the
expectation of getting a higher RV than the lender. For instance,
an insurer facing an RVI payout of, say, £200 (€241) may seek to
mitigate that loss by buying the asset for £1,000 and reselling it
for £900. As a result, its total loss is halved to £100.

Insurers need to be cautious, though, particularly as correctly
determining residual values is becoming harder to do in the current
economic climate.

As a result, firms like QBE have hired asset-experienced
advisers. They are also careful about which assets they take
residual value risk.

Most say they refuse to underwrite cars, light commercial
vehicles and fast-moving technologies, although they are happy to
move away from their traditional base of business, the big ticket
sector, into smaller asset types.

Notwithstanding this, some are investigating ways of driving up
business in the asset finance related market. QBE, for example, is
considering providing insurance against losses arising out of
shortfalls in the availability of assets for economic production
(performance-related risk). This is particularly prominent in the
renewable waste
sector.

A major outcome of insurers taking residual value risk from
lessors is that finance companies, for their own accounting
purposes, no longer have to account for the asset on their balance
sheets. Instead, they become finance leases, at least in the eyes
of the credit controller. However, for lessees they are still
operating leases and thus, for them, off-balance sheet.

Hunt at Lease & Loan Insurance Services Ltd, which offers
RVI as an accounting tool, said it is looking at widening its early
termination insurance offerings.

Brendan Malkin