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09-18-2016, 11:34 AM #1
Reputation points: 16720
- Join Date
- Sep 2014
- Posts
- 430
Since this product doesn't exist yet, the success of the program will be contingent upon getting enough take up to create the pool that will insure the losses. Put another way, unless the buy in doesn't reach X value they can't write the insurance. Also, it probably isn't a good of a deal as it sounds. Since any insurance is the socialization of a pool of costs, they have to cover those and overhead and profit. For a lender with a 10% dollar loss rate that isn't going to be cheap. It also necessitates that high credit quality portfolios buy the product to offset the 10% guys. If that doesn't happen, the costs spool up quickly and/or the fund goes broke.
Also, the insurer will have to UW your book to offer you a rate, since they aren't going to insure CAN's book at the same rate as a two bit hack shop doing 5th positions out of Brooklyn. Not to mention now the insurer will know everyone's loss rates and portfolio composition. That is very valuable information that you'd be paying them to take. Sure, they can sign an NDA, but that doesn't mean ****.
This is essentially a sales pitch. Act accordingly.
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