Munich Re Extends Solar Panel Manufacturer Cover to Protect Against Insolvencies

Munich Re said it has extended its coverage offerings for solar panel devices with a new insurance policy to cover the performance guarantees of solar modules in the event their manufacturer becomes insolvent.

The reinsurer said the new policy is designed to complement an existing policy that covers the risk to operators that solar module output may fall below the level guaranteed by a manufacturer that can no longer be held liable under its warranties due to insolvency.

Munich Re said the new optional cover, developed in conjunction with Deutsche Bank, was first used for a solar park project in southern Italy, and was jointly financed by Deutsche Bank and Rabobank.

Gerd Henghuber, a spokesman with Munich Re, said the coverage will be offered on a global basis. He added the coverage will be offered through Munich Re affiliate Great Lakes Reinsurance (UK) plc.

Great Lakes, a wholly owned subsidiary of Munich Re, acts as an insurance vehicle for the Munich Re group, developing opportunities for Munich Re and managing business using its wide range of insurance licenses, according to BestLink. The majority of the company's business is sourced in the United Kingdom, United States via an extensive range of U.S. licenses, and passport opportunities in the European Union.

Great Lakes underwrites large single risk of corporate clients in the London market, mostly through brokers, according to BestLink.

According to Munich Re, which has insured photovoltaic module manufacturers' performance guarantees since 2009, there had been no cover against the risk of the manufacturer’s insolvency. "Since the insured under the guarantee cover is the manufacturer, in the event of insolvency proceedings the cover would either pass to the legal successor, where applicable, or expire," the reinsurer said. "Consequently, under the optional cover the insured is the investor which obtains financing from a bank, and not the manufacturer. The new cover caters for large solar parks with an output of more than 20 megawatts."

"Our aim in developing and marketing the optional cover was to further facilitate solar park investment by assuming the risk of the module manufacturer’s insolvency, as coverage of such risks makes it easier to calculate stable, secured cash flows for solar parks," said Munich Re board of management member Thomas Blunck in a statement. "Thus, major projects in particular have better access to financing."

Henghuber declined to comment on the amount of capacity Munich Re would dedicate to this line of business.

A number of solar panel manufacturers have declared insolvency over the past year. The most recent significant bankruptcy was a German manufacture, Solon, which began insolvency proceedings in mid-December. Energy Conversion Devices, a maker of solar thin film laminates, shut down production in factories in Michigan, Canada and Mexico in November. Solyndra, a California-based manufacturer, declared bankruptcy early last year.

Munich Re said without this new kind of coverage, banks may refuse to provide the necessary capital. "If, during the period of insurance, module output falls below the guaranteed levels and the manufacturer can no longer be held liable due to insolvency, Munich Re will indemnify the insured and provide the financing to compensate for the reduced output," said Munich Re. "Coverage of such risks is subject to the proviso that Munich Re already insures the module manufacturer's performance guarantees. To provide this cover, initially marketed primarily through banks, Munich Re has involved one of its specialty primary insurers."

Renewable energy insurance has strong growth potential, according to Munich Re. The reinsurer recently cited the Asia/Pacific region as a growth market in this field, fuelled by demand for protection against financial and credit, technology and warranty risks, which are seen as part of the risk management strategy for long-term and large-scale projects.

Renewable energy is "highly capital intensive" in both manufacturing and project development, said Christian Scharrer, head of green tech solutions at Munich Re, in an interview (Best's News Service, Oct. 25, 2011). Enterprise risk management is not just concerned with the technology, but also financial and warranty protection, he said.

Munich Reinsurance Co. and Great Lakes Reinsurance (UK) plc currently have a Best's Financial Strength Rating of A+ (Superior).

(By David Pilla, international editor, BestWeek: David.Pilla@ambest.com) Copyright:  (c) 2012 A.M. Best Company, Inc. Wordcount:  692