Our Services

EXPERT GUIDANCE

Overview

This market has evolved significantly over the past 5 years and whilst the economic crisis has not directly caused an abundance of losses, it has driven asset prices to the levels that could cause loss if maturity dates were to coincide with the current crisis. The most recent market prior to the crisis was beginning to fragment as insurers took stock of their assets and decide whether to mange their portfolios or further increase their diversifications. What happened prior to the crash was a significant uplift in premium rates and an acceptance of tighter terms and conditions, prior to a wholesale withdrawal of available capacity.

The Future Market

Here we see a similar pattern to the mortgage market. A return to lending against assets will be predicated with a reliance on either a lower LTV lending or third party equity or insurance. The reliance on rating agency views of asset portfolios will be tested against how they have performed during the crisis and asset values will be carefully watched to see how they recover.

One given is again that in order to proceed, lenders will need to tighten how they lend, to whom they lend and on what they lend. Deal committees will no longer be so relaxed if real equity does not exist and whereas in the past insurance premiums were paid upfront for the life of the cover, we believe that annual premium costs will be built into annual lending charges and become more acceptable as part of the overall financing package.

The Opportunity

Capacity is always going to be a key driver and as we line up the required line sizes to control an entire financing discussion, then we will be able to trap early margin with a possible future release, as profit commission, once the insurer is released of risk. Portfolios of assets can be designed to spread term risk throughout rather than risk a concentration of "point in time" risk such as in the current crisis.

The available assets to provide cover on will again be driven back to core assets with the more esoteric transactions confined to more real equity investors rather than the insurers.

Construction risk on property the world over will be a main source of opportunity as lenders will not wish to over expose themselves to the property market after the recession. Here we will be able to apply similar principles to the mortgage risk in that we can adjust term and terms to suit our risk appetite.

In the short term, the opportunity will exist for Insurers to demand "upside" premium on assets as they come off risk in order to facilitate the original financing structures.