Don’t be Surprised by Actual Cash Value (“ACV”) . Presented by Mark Roberton – Nexen Tom O’Leary – FMC Norma Reimer – Trek. Some ACV Background. Historical form of Insurance Strict Indemnification Alternative Covers today RCV Guaranteed Replacement Cost Stated/Agreed Value forms.
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Mark Roberton – Nexen
Tom O’Leary – FMC
Norma Reimer – Trek
Risk Managers Need To Be Well-Familiar with ACV & when it should be used as an option!
Replace v. Don’t Replace v. Replace with Something Else
● Can Cover Be Amended?
Can’t complete repairs on timely basis
Would prefer the Cash – rather than repair/replace
Company is Cash constrained (e.g. exhaust insurance available)
Can’t or Don’t want to meet Specific RC requirements
Not an ACV Expert
Not representing Clients (past or future)
Not representing my firm
Maybe not even representing me (in the future)
Any Resemblance to Real Life Is Purely Accidental!
V. Fair Market Value
V. Value to Owner
V. How much would you Pay?
Market Value usually = Fair Market Value
FMV is “Highest price available in an open market, between prudent parties both willing to transact, in terms of cash, at a point in time”
What about Value to OwnerConsiderations??
“Refers to all economic (and non-economic) benefits that accrue from ownership” – e.g. Owner may generate higher benefits due to personal contacts, etc.
ACV = Replacement Value Less Depreciation?
(but if it’s a partial loss maybe no depreciation – question is would the repair leave you better off?)
Incidentally, What Is Depreciation?
Is Depreciation the Flip side of Betterment? Maybe…
of the Old >with New
= (ACV)= (RC)
of the old = (ACV)with new = (RC)
Say you are going with this guideline:
Replacement Cost Less ● Depreciation
● Functional, ● Technical, & ● Economic Obsolescence
Assuming you have a total loss…
What the heck are these things?
$$$Economic Obsolescence $$$ Earnings?
More Externally-Driven Declines in Value -- Probably the most unclear…
Does your asset make you money?
Would your asset make someone else more money?
Will your asset make more money than its replacement cost over time?
Keeping alive the option to replace can be helpful
Just being aware of the issues in adjusting ACV is half the battle!
Actual Cash Value Coverage
Replacement Cost Coverage