Inaccurate residual policies create
downstream losses or limit new business activity.
No approach existed to validate the residual
policies that were purchased.
Changes in equipment features over time
complicated the understanding residual value.
Action Taken
Teamed with SMEs to consider alternate
methods and to develop concept approach.
Modeled 'constant' value over time using
historical sale prices, holding collateral features constant, then
restated collateral value to current dollars.
Modeled depreciation curve for each asset class.
Developed, validated, and rolled out policy
matrix.
Business Results
Developed a framework to analyze residual policies.
This increased the level of understanding of market risk and
collateral valuation over time.
Developed an in-house capability
which reduced the need to purchase residual policies.
The first year introduction prevented
significant overstatement of
residuals, preventing potential downstream losses.