Insurers: Convert non-admitted assets to cash
Insurance companies are laser-focused on maintaining sufficient levels of regulatory capital. Sale-leasebacks enhance balance sheet efficiency by replacing non-earning fixed assets with cash and equity.
Why this matters
To stay competitive and foster growth, insurance companies must maintain sufficient levels of regulatory capital. A sale-leaseback of non-admitted assets can positively impact your capital ratios and improve cash flow.
Insurance companies must have a solid plan in place for dealing with catastrophic events to ensure they are able to meet their obligations to policyholders. Therefore, non-admitted assets can be critical to the operation of your business.
Non-admitted assets are not included in the capital ratio mandated by Statutory Accounting Principles (SAP). These assets can improve your capital ratios when you convert them to cash through a sale-leaseback structure.
How it works
- The insurance company sells non-admitted assets to Key, and Key leases the non-admitted assets back to your organization, converting them to cash.
- There is no correlating debt liability offsetting the cash increase, as all leases are defined as operating leases by National Association of Insurance Commissioners guidelines (under SSAP 22R).
- Examples of qualifying non-admitted assets include:
• Computers
• Servers and network infrastructure
• Furniture, fixtures, and equipment
• Proprietary and third-party software
Leveraging a sale-leaseback strategy to turn non-admitted assets into deployable cash and regulatory capital can be a winning strategy. I have seen this strategy used effectively in many situations.
Dan Bauer, CPA & Principal, CLA (CliftonLarsonAllen LLP)
The benefits
Used as a tool to enhance, control, and improve your organization’s regulatory capital ratios, a sale-leaseback will:
- Be viewed favorably by regulators and rating agencies
- Increase available cash on hand
- Leverage a large non-admitted asset base
- Increase reserves after an unexpected claim event
Empower your working capital
To unlock the full potential of your non-admitted assets, contact:
Jay Archambeault, SVP & Director, Key Equipment Finance, or
Wayne Guessford, Managing Director, KeyBanc Capital Markets Institutional Banking
This is designed to provide general information only and is not comprehensive nor is it legal, accounting, or tax advice. Key Equipment Finance is a division of KeyBank National Association. All credit, loan, leasing products are subject to collateral and/or credit approval terms, conditions, and availability and subject to change.
KeyBanc Capital Markets is a trade name under which the corporate and investment banking products and services of KeyCorp® and its subsidiaries, KeyBanc Capital Markets Inc., Member FINRA/SIPC (“KBCMI”), and KeyBank National Association (“KeyBank N.A.”), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. and its licensed securities representatives. Banking products and services are offered by KeyBank N.A.
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