We re committed to providing subordinated debt should GDP growth decline, says Skwarek. That financial trigger was structured as a double trigger as you see in insurance. It can make an asset that wasn t perceived as collateral and give it collateral value that appeals to a lender. While the derivatives market seems similar, there are distinct differences. Derivatives, using formula-driven payouts, redistribute the risk quickly throughout capital markets.
Insurance is customized and operates under the terms of a policy instead of a derivative formula.
Insurance also has a longer duration than a derivative and covers a longer-term risk than a derivative. Guaranteeing the bottom value of an asset can aid in deal facilitation. Giving loan investors a secured floor on the value of a transaction is another way insurance affects the bottom line. Floors are ranges of value assigned to transactions that allow investors a value of the collateral used. They weren t going to put 100 percent equity into it.