XS Reserve is a new approach to credit risk funding.XS Reserve is a new approach to credit risk funding. XS Reserve is an innovative and flexible new product designed to support Treasurers/senior financial managers seeking to stabilize cash flow and reduce operating costs. By cash funding receivables volatility, XSR avoids the need for expensive standby liquidity facilities to cover bad debt losses. The insurance cover responds to losses as they arise up to the full contract value from day one, but importantly allows reserves to be developed without incurring the ‘sunk cost’ of ground up credit insurance cover, and so compliments AIG’s XOL cover.
Features: The basic structure
Agreed level of reserve funded by monthly increments over a period of up to 3 years - Full loss payable from outset irrespective of funding to that date - Reserve assignable to third party (including bank/trade financier) - Reserve remains an asset in insured’s accounts (with lien to underwriter in event of loss) - Cumulative balance reverts to insured subject loss experience over period
New approach to funding deductibles can also be applied to cover captive programme ‘risk gap’
Acts as alternative to standby LoCs
Enables enhanced advance rates on funding programs
Benefits:
Businesses can access a more cost effective XOL trade credit solution rather than pay away for the sunk cost of ground up cover, while still benefitting from immediate credit risk mitigation
Businesses don’t have to worry about finding emergency cash funds if they face unexpected losses falling within the deductible
Trade Credit XS Reserve can support businesses’ bank funding by providing banks with immediate cash collateral
Once the reserve has been built up it can be used to establish a captive for the business to serve other lines of insurance business
Background: The product was designed by Alastair Malcolm who had previously created the concept of XoL credit onsurance. He and David McKibbin developed the idea to meet the growing gap created by the withdrawal of banks from lending and the provision of credit following the financial crisis.
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