A new entity has been formed specifically to launch the Alternative Letter of Credit (ALOC) facility, an off-balance sheet solution for companies that need to post collateral for casualty insurance programmes.

Casualty insurance programmes, often referred to as liability insurance, provide coverage for third-party claims arising from bodily injury or property damage for which an insured party is legally responsible.

Target market

Generally, businesses or entities in industries with higher risk exposures such as those in construction, manufacturing, or chemical production, may be required to post collateral to secure their casualty insurance coverage.

The ALOC facility is designed for such companies, whose credit capacity is reduced and liquidity and working capital are impacted because of the need to post collateral.

How it works

The alternative to a conventional L/C developed by Convergence Point Solutions (CPS) to satisfy traditional collateral requirements through its ALOC facility, essentially creates off-balance sheet credit capacity outside the traditional banking system.

Companies pay a credit-based fee, and the facility arranges for an L/C to be issued by a bank approved by the US' National Association of Insurance Commissioners as collateral for their casualty insurance policies. This replaces and releases their existing collateral and restores their credit capacity.

CPS is a newly formed strategic partnership between global investment banking and advisory firm GreensLedge, and Vanbridge, a diversified insurance and capital solutions firm that provides products and services at the intersection of the insurance, private equity and hedge fund industries.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.