Lloyd’s Broker, Edge Group has launched a facility for residual value insurance (RVI) on commercial aircraft.
Edge Group has arranged underwriting capacity in excess of $50,000,000 per aircraft with insurers with ratings of between Standard & Poor’s ‘A’ to ‘AA’.
Policies will range in coverage from 3 to 12 years, with claims made direct to insurance companies.
Peter Spencer, edge group’s director of structured risks said the business has spent "a great deal of time" developing a residual value product for commercial shipping which they were extending to commercial aircraft.
Residual Value Insurance (RVI) Indemnifies a bank or lessor against a loss that might occur if the sale proceeds an aircraft are less than the insured residual value at one point in time. This is normally on maturity of a lease or when a balloon payment is due in non-recourse debt financing. The cause of loss would be the unexpected decline in value the aircraft due to changes in market conditions. This enables a bank or leasing company to insure their downside at the end of a lease whilst keeping all the upside, said Edge.
Edge Group said RVI had been "notoriously difficult" to arrange, but that it was at the forefront of the development of the product in the commercial sphere.
Spencer said “Of course RVI insurers would prefer to offer RVI on aircraft which are ‘newer technology’ narrow body commercial aircraft and the most competitive terms can be negotiated on these. However, as we are working with a number of different insurers with different risk appetite, it is possible to find insurers prepared to offer terms on many types of aircraft provided these are not older than 14 years at maturity of the RVI. These include narrow body Boeing and Airbus, wide bodied aircraft, Freighters, Regional Jets, Corporate Jets, Turbo Props, Helicopters and certain aircraft Engines”.
"It is very important to arrange RVI with security which is undoubted. The policies we arrange are for periods ranging from 3 years to 12 years, so it is imperative for us to know the insurance company will be there to pay a claim when the time comes. Documentation is important too. Each policy is tailored to the specific transaction with lawyers acting on each side to ensure the documentation is watertight. As the policies can be for as long as 12 years and many things can happen over this time with changes in personnel, so claims are made direct to the insurance company’s claims department”.
Spencer added: ”This is an exciting period for us. We are starting to see a flow of viable deals from all over the world and we are starting to put them away”.