Residual Value Insurance

Residual Value Insurance (RVI) is an insurance product that has been in the markets for a number of years, guaranteeing that a properly-managed asset can be realised at a minimum agreed value, at a given future date. It has traditionally only been written only by a small handful of insurers, covering very narrowly defined types of assets such as marine vessels, aircraft, and vehicle fleets. RVI covers have been useful in supporting large-scale leasing programs for these capital-intensive assets, but the markets previously have not generally broadened beyond this scope.

Matrix is at the forefront of leading the RVI sector toward a much broader and deeper functionality. By using the underlying concept of RVI and applying it to a range of different asset types and coverage structures, we can assist companies in raising capital more efficiently and managing their asset value risks in new ways. RVI can also offer benefits related to accounting treatment, capital optimisation and cashflow improvement.

When used creatively, RVI can ‘harden’ asset values to make them suitable for use as collateral on debt or highly-structured financings when lenders may otherwise be unwilling to loan at a reasonable Loan-to-value ratio against those assets. It can also higher support LTV levels than uninsured assets, closing the gap in leveraged capital stacks.

Underlying assets potentially available to be insured include:

• Commercial real estate (low LTV levels only)
• Commercial Aviation assets
• Intangible assets such as Intellectual Property
• Industrial equipment including mining/drilling equipment, power assets, plant and machinery & construction equipment
• Commercial vessels and offshore assets
• Rolling stock, trains, trams, buses and other transportation
• Non-traditional assets, for example commercial lease portfolios, energy reserves
• Financial assets, for example, illiquid bonds, thinly traded commodities

While RVI is primarily associated with risk mitigation, it also possesses inherent qualities that make it environmentally friendly. In today’s finance landscape, where environmental, social, and governance (ESG) considerations are gaining prominence, RVI plays a crucial role in supporting sustainable practices.

In the aviation sector, RVI policies are exclusively written for the newest assets with cutting-edge technology and the cleanest, most efficient engines. This selection process ensures that assets meet stringent criteria for making a claim under the policy. However, RVI policies do more than safeguard financial interests; they incentivize the use of Sustainable Aviation Fuel (SAF). By extending coverage to assets that prioritize SAF in conjunction with traditional fossil fuels, RVI providers promote the aviation industry’s transition to more sustainable practices.

The shift towards SAF and the stringent maintenance requirements laid out in RVI policies contribute to significant reductions in carbon emissions. Moreover, the Sustainably Linked Loan Principles, which are increasingly applied to transportation funding, further reinforce the sustainability objectives associated with RVI. These principles enable the funding of sustainable overhauls in an airline’s operations, such as the adoption of more fuel-efficient aircraft, investments in biofuel technology, or sustainable improvements in real estate portfolios and procurement arrangements.

Traditionally, marine assets relied on steam turbines or diesel engines, leading to considerable environmental impact. However, the marine industry is now witnessing a transition towards greener ships that leverage advanced technologies to enhance their environmental performance. RVI policies for marine assets favour newer vessels that utilize technologies required by the International Maritime Organization (IMO) to improve their green credentials.

These technologies include dual fuel engines, exhaust gas recirculation, fuel cell technology, and exhaust scrubbers, which drastically reduce emissions of sulfur oxides (SOx). Additionally, improved hull paints that reduce friction and hybrid systems incorporating solar and sail power can increase fuel efficiency by up to 8% and save fuel by approximately 25%. RVI policies have also been issued for liquefied natural gas (LNG) powered vessels and LNG tankers that are fueled by their own cargo, resulting in substantial emissions reductions and a greener marine industry.

RVI policies in the real estate sector focus on commercial assets designed, built, and operated to minimize environmental impact. These assets undergo rigorous evaluation to ensure they achieve a green rating, reflecting their environmental friendliness. RVI providers consider the four pillars of sustainability: human, social, economic, and environmental impact.

Commercial properties covered by RVI policies prioritize energy efficiency, renewable energy generation, greenhouse gas emissions reduction, and responsible water usage. By encouraging sustainable real estate practices, RVI not only protects the financial interests of lessors and lenders but also contributes to the broader goal of sustainable development.