Imagine you go to the bank to get a loan for a new tractor for your business. They ask to see a list of your assets and liabilities (your balance sheet).
You own a house worth $1 million with no mortgage.
You have an insurance policy.
You have nothing else.
If bushfires start right next to your house as you are meeting the bank manager, you don't say to him/her: I have a house that is worth 900k marked to market because of the bushfire risk, and I marked my insurance policy to be worth $100k.
You have a house worth $1 million. The insurance policy is "off balance sheet" despite the fact it could be worth a lot of money.
Imagine you go to the bank to get a loan for a new tractor for your business. They ask to see a list of your assets and liabilities (your balance sheet).
You own a house worth $1 million with no mortgage. You have an insurance policy. You have nothing else.
If bushfires start right next to your house as you are meeting the bank manager, you don't say to him/her: I have a house that is worth 900k marked to market because of the bushfire risk, and I marked my insurance policy to be worth $100k.
You have a house worth $1 million. The insurance policy is "off balance sheet" despite the fact it could be worth a lot of money.