Those interested in both green investments and insurance might want to consider keeping an eye on a recently issued performance insurance policy that combines both.
The policy, a collaboration between XL Group’s Complex Accounts unit, Munich Re’s Green Tech Solutions team and consultants New Energy Risk (NER), was issued for a portfolio of fuel cell servers installed in the U.S. that enables a grid-independent energy supply for several companies. The fuel cells’ performance is insured for a period of 15 years if the manufacturer is unable to meet warranty obligations. The project was financed by a $99 million bond that was granted an investment-grade rating, thanks to the insurance coverage for performance—something the collaborating companies say was critical to support the project.
XL Group started the ball rolling on this kind of performance insurance coverage in 2013 with New Energy Risk. XL Group, together with Munich Re, provided the insurance coverage, and the companies say it’s the first time an insurance coverage has contributed to a financing bond receiving investment-grade rating.
“Each of these companies brought valuable expertise that, combined, led to a unique insurance solution for a new technology. This collaborative approach could pave the way for further business in this and other energy-related fields,” said Tom Hutton, CEO of New Energy Risk, in a statement.
The underwriters faced a number of challenges in coming up with the product, and in an email interview, representatives for all three companies weighed in on different aspects of the project’s complexity.
Joachim Walch, head of underwriting in XL Group’s Complex Accounts unit, listed some of the challenges. “To start with, we needed to understand the real need of the client and the investors and to translate it into an operational risk transfer policy so that we could offer the expected added value for the insured. An important goal was to enable the client to secure capital on a better basis than he would have had without the insurance coverage.”