Market concerns

Recent wind and/or hail events in the Southern US and Middle East, and flooding in the UK and Europe have caused losses at solar parks which are now running into tens of millions of dollars. For some of the renewable energy markets this has led to an even greater focus on natural catastrophe perils for insurers; sub-limits and higher deductibles are now the norm in regions that have suffered these events. Insurers are now highly selective when it comes to deploying NatCat underwriting capacity, even in areas previously considered relatively benign in terms of weather risk. Un-modelled losses are being cited as the rationale for this approach from insurers. Theft from solar parks during both the construction and operational phases is an increasing concern, especially in the UK and parts of Europe.

Buyers need to be prepared to demonstrate how their project will withstand the elements. Wind speed tests, flood risk management, wildfire strategy and mitigation of damage from hailstones must form the backbone of any underwriting presentation.

Lenders will always look to transfer as much risk as possible to the commercial insurance market; the expectations between historical minimum lending requirements and current market conditions needs to be handled pragmatically. Rising deductibles and reduced sub-limits for natural perils will be viewed as an increased credit risk, potentially attracting tougher debt terms. Probable Maximum Loss studies are beginning to form part of a lender’s standard due diligence process when it comes to insurance procurement. Buyers should factor in additional costs and allow for a lead-time of 4-5 weeks for this exercise.