insurance bankability - mfe€¦ · project owner/developer considers purchase of munich re insured...
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INSURANCE
BANKABILITY
Innovative Insurance Solutions for Renewable Energy
Corporate Insurance Partner –
Special Enterprise Risks, Green Tech Solutions
Corporate Insurance Partner
SER is a unit within Corporate Insurance Partner (CIP) Our focus: individual risk solutions for individual risk profiles
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Client Management and Claims Handling and Operations units support our lines of business.
We are supported by Munich Re‟s know-how and solid ratings (‘AA’-category)
Property Casualty Energy Engineering
Alternative Risk Transfer /
Financial Solutions
Intangible Assets / New Products
Green Tech Solutions
SER - Special Enterprise Risks
Traditional
Insurance
Products
Individual
Risk
Solutions
Green Tech Solutions Wide range of solutions for the renewable energy sector
Solar Performance Warranty Insurance (25 years, non-cancellable)
Corporate Cover: Balance Sheet Protection for Module Manufacturers
Option Cover: Assignment of Coverage for Solar Projects
Solar thermal / concentrated solar power (CSP)
Wind Performance Warranty
Serial loss cover for turbine manufacturers
In development…
o Solar Inverters
o Fuel cell / Performance Warranty for Lithium Ion Batteries
o LED (lighting) performance warranty
o …
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SOLAR PERFORMANCE WARRANTY INSURANCE
CORPORATE COVER:
BALANCE SHEET PROTECTION
OPTION COVER:
ASSIGNMENT OF COVERAGE FOR PROJECTS
CORPORATE COVER:
BALANCE SHEET PROTECTION
Solar Module Performance Warranty: 20 to 25 years 90% for years 1-10; 80% for years 11-20/25
Annual degradation
0.2%
210 Wp
200 Wp
Example of Performance degradation claim scenario:
• Modules with nominal power rating of 200 Wp (positive binning: -0/+5%)
• Expected annual degradation: 0.55%
2021 2036 2011
80%
90%
Warranty claim: Expected case
Claim
Claim
1.1%
Excessive annual degradation will result in warranty claims!
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Elements of the Coverage
Deductible, quota share, annual limit, policy limit adapted to manufacturer‟s risk appetite
Insured participates in each $/€ of loss (alignment of interests)
Coverage above frequency losses: for large serial losses that jeopardize mfg‟s going concern
Risks insured: Faulty Manufacturing / Material Defects / Material Ageing
Production
year
Liability period (non-cancellable)
year 25
Policy Period
Deductible
80%
Munich RE
20%
XYZ
Solar
Inc.
Example: Annual Limit*:
10% - 20%
Policy Limit*:
20% - 40%,
(or 2X annual limit)
* based on revenue of
insured production year
Annual Deductible:
(+/- 2.0% of insured revenue )
Corporate Cover Structure Module Manufacturer Insurance
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Munich Re’s underwriting reflects strong technical know-how.
Underwriting Process
Request for Insurance by Broker / Clients
Non Disclosure Agreement
Flash Data, Questionnaire and Warranty Cond.
Non-Binding Premium Indication
Site Visit (subject to receipt of applicable fees)
Binding Offer
Execution of Slip and Policy Wording
8 November 2011
FOR PROJECTS
ASSIGNMENT OF COVERAGE FOR PROJECTS
Performance Warranty Insurance for Solar Projects Enhancing the Credit Risk of the Module Manufacturer
In addition to the ‘corporate balance sheet protection’ for solar module
manufacturers, Munich Re offers performance warranty insurance to the solar
projects and the financing lenders of its insured manufacturers.
Under a separate agreement, the solar park (and effectively, its financing lenders) is
„assigned‟ the direct beneficiary rights of the manufacturer‟s coverage if:
1) Performance degradation of the Munich Re-insured modules in solar park AND,
2) Module manufacturer is insolvent with no legal successor, AND
3) If applicable, debt service on project financing is not satisfied.
October 2011 10 Munich RE - Corporate Insurance Partner
Module
Manufacturer
Solar Farm
LLC (SPV)
MR Policy
Performance
Warranty
MR Option
Assignment
CREDIT RISK
Option Cover healthy situation
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Manufacturer
SOL Inc. Solar Farm Ltd.
20+ MW project
Munich
RE BANK
Performance warranty
Performance warranty
Non recourse financing
Option Cover risky situation
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Manufacturer
SOL Inc. Solar Farm Ltd.
20+ MW project
Munich
RE BANK
Non recourse financing
Option Cover unhealthy situation
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Manufacturer
SOL Inc. Solar Farm Ltd.
20+ MW project
Munich
RE BANK
underperformance
1. Module underperformance
2. Project‟s cash in-flow reduced
3. Partial/total default on debt service
4. Financing banks have a credit event
non recourse financing
Option Cover recovered situation
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Manufacturer
SOL Inc. Solar Farm Ltd.
20+ MW project
Munich
RE BANK
recourse financing
DSCR < defined trigger
=
Coverage payout triggered
Performance Warranty Insurance for Solar Parks Summary Example of Transaction
•Policyholder: „Solar Park‟ LLC (Borrower/Equityholder)
•Beneficiary: Finance Lending Bank(s)
•Policy Period: 15 years, or satisfaction of the debt
•Total Sum Insured: Purchase price of PV modules (based on €x.xx/Wp)
•Rule of Law: New York or English Law
• Insured Event:
1. Photovoltaic Modules perform at a power output below the warranty levels during the
Policy Period; and,
2. Any of the Historic Debt Service Cover Ratio, Forecast Debt Service Cover Ratio or
Loan Life Cover Ratio falls below the relevant Required Level: i.e. 1.25x; and,
3. In respect of the Manufacturer: (a) an Insolvency Event has occurred, (b) any related
insolvency proceedings or similar procedures are finalized, (c) its operations are
discontinued and its assets have been fully and finally distributed, or (d) its corporate
entity is terminated without a legal successor.
• Provisional Claim Event: Same as 1. and 2. above, but Insolvency Event NOT
final.
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Performance Warranty Insurance for Solar Parks Summary Example of Transaction (continued)
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• Claims Payment Scenario(s):
DEFAULT
1.00x
1.25x
1.30x Base Case DSCR
Required Level
(Insurance Trigger)
Provisional Claim
(up to 24 months debt
service coverage)
Insured Event
(pay down debt to
satisfy base case
DCSR)
The purpose of project cover is to deliver default protection.
Option Cover underwriting reflects adaptation to project
financing and investor needs.
Underwriting Process
Project owner/developer considers purchase of Munich Re Insured solar modules
If manufacturer is not insured by MR , then parallel corporate (and technology) underwriting may commence
Non-disclosure Agreement
Munich Re receives financial model and financing documents
Non-binding premium indication and term-sheet to reflect negotiated terms
Binding Offer
Execution of Slip and Policy Wording
17 November 2011
Corporate Cover Project Cover
Underwriting Technical: reliability testing, quality
control, on-site manufacturing due
diligence
Financial: cash-flow modeling, finance/legal
structure review
Policyholder Module Manufacturer Solar Park SPV or equity holder with
owner / lender as beneficiary
Deductible 2-5% requirement (annual) No deductible, but insured„s „skin-in-the-
game‟ is secured by equity or debt service
requirement ratio (DSCR)
Co-insurance
15-20% loss shared by manufacturer No co-insurance / quota share (see above)
Policy Limit 10-20% of module revenue of
insured production year)
Purchase price ($/€ per Wp) of modules in
MR-insured solar park
Policy Term Warranty period, non-cancellable, up
to 25 years
Co-terminous with the debt service / project
financing, including early redemption
Waiting (or “Black-
out) Period
Minimum 2 to 5 years No black-out period, follows terms of debt
financing
Project Cover is a different deal! But tracks the technical triggers of related Corporate Cover: Performance degradation (Faulty Manufacturing / Material Defect / Material Ageing)
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Performance Warranty Insurance Comparison
Solar Performance Warranty Benefits Comparison Feedback from the market
Benefits for:
Corporate Cover
PV manufacturers
Project Cover
Customers of insured manufacturers
Insuring •Insurance = pro-active risk
management
•Alignment of interests ensures long-
term concern
•Mitigates credit risk
•Decreases uncertainty of manufacturer‟s
creditworthiness, even given longer warranty
period
Marketing •Customers prefer modules from
insured manufacturers
•“Differentiates” manufacturer in
competitive market
•Munich Re seal of quality
•Attractive, enhanced risk profile
•Differentiates project in competitive market
•Optimizes financing terms
Risk Capital
Management •Reserving 1.0% - 2.5% of revenue
•Insurance structure frees up capital
(liquidity enhancement)
•Enhanced counterparty credit = favorable
capital treatment by regulators / auditors
•Enhanced recovery scenarios for internal
hedge and risk-weighting
Bankability
•Munich Re is credible counterparty
•MR‟s underwriting valued as second
opinion on technology risk
•Financial security
•Optimization of capex financing
•Technical endorsement
•Munich Re‟s underwriting and know-how are
valued by investors
•Second opinion on technology risk which
most investors cannot perform
Insurance as business enabler credit risk management
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Market Trends Outlook for renewable energy financing
Renewable Energy is a long-term asset with associated technology risk
• Predictability / stability of cash-flows for project financing
• Liquidity
Since 2008, most project financing downgrades associated to downgrade of monoline
financial guaranty insurers
• Direct need for reliable, creditworthy partners
• Cash-flow default support to instill confidence in industry, meet investor demands
Regulatory uncertainty: impending Solvency II / Basel III for insurance & banking (2013)
• Higher funding costs, scarce liquidity (i.e.. LOC banks)
• Exit of project finance lenders
Shift to capital-markets funding… securitization?
• Monetized cash-flows require strong credit ratings / transparency
• Need for innovative financing solutions and risk transfer to lower financing costs
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Green Tech Solutions Contact details
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ASIA PACIFIC
Jan Napiorkowski
Tel.: +852 2536 6980
EUROPE
Christian Scharrer
Tel.: +49 89 3891 2033
USA
George Schulz
Tel.: +1 212 887 6006