Transactions: Americas

Located approximately 1 600 kilometres southeast of Miami, Puerto Rico sits directly in the path of potential North Atlantic tropical storms and hurricanes. The devastating human toll and physical destruction caused by hurricanes Irma and Maria in 2017 underscored the archipelago’s vulnerability to hurricanes. Strong winds toppled power lines, leaving 1.4 million customers in the dark and hampering recovery efforts. Puerto Rico’s reliance on an ageing, fossil-fuel-powered energy infrastructure with a centralised distribution network contributed to what would become the largest and longest blackout in US history: it took 11 months to restore power to the island’s most remote locations.

Decentralised microenergy networks such as residential solar panels can help boost Puerto Rico’s resilience to energy disruptions caused by storms. But in 2020, one of the leading local providers of residential solar panels and energy storage solutions was struggling to find risk capacity for hurricanes. Swiss Re Corporate Solutions was able to offer a parametric named storm insurance solution for this provider’s solar panels in Puerto Rico. But what really set our solution apart was the fact that it also provided coverage for two important but often overlooked risks: the risk of lost income when a downed power grid prevents the transfer of excess energy back into the grid, and the risk that customers might miss the lease payments on their solar panels following a devastating hurricane.

By providing risk protection for solar panels in Puerto Rico, not only does Swiss Re support our ambition to accelerate the transition to cleaner energy, it also contributes to local communities’ resilience in the aftermath of powerful storms.

In September 2020, Swiss Re Corporate Solutions and its data partner, kWh Analytics, successfully developed a ten-year Solar Revenue Put for an investor in large, utility-scale solar projects. The client was familiar with this Business Unit’s power-generation expertise and claims experience from previous insurance transactions.

The Solar Revenue Put is an insurance product that guarantees up to 95% of a solar farm’s expected output, helping to mitigate a central risk of generating solar power – lack of sunshine. The client pays a premium for the product and, if the plant does not generate enough power, Swiss Re covers the lost revenue.

To learn more about how the Solar Revenue Put helped our client refinance their portfolio of projects, please refer to the Business Report 2020.

According to the World Bank, over 40% of Mexico’s territory and up to one-third of its population are exposed to hurricanes, storms, floods, earthquakes and volcanic eruptions. As a result, more than 70% of the country’s GDP is considered to be at-risk from two or more hazards.

For this reason, the government of Mexico has been a leader in managing natural catastrophe risk, having been the first country to issue a catastrophe bond to raise funds for disaster relief and reconstruction efforts in 2006. Since 2009, the government of Mexico has used the World Bank’s International Bank for Reconstruction and Development (IBRD) catastrophe bond issuance platform, whereby sovereigns pass risk to the World Bank, who in turn issues the notes to investors. Swiss Re has long been a trusted partner to the government of Mexico, having helped place nearly all of its catastrophe bond issuances.

In March 2020, the World Bank successfully issued four tranches of catastrophe bonds that provide the government of Mexico with financial protection of up to a record USD 485 million against losses from earthquakes and named storms until 2024. Swiss Re Capital Markets acted as Joint Structuring Agent and Joint Bookrunner and Swiss Re as transformer between Mexico’s state-owned insurer, Agroasemex, S.A., and the World Bank. Payouts to Mexico are triggered when the earthquake or named storm meet the bond’s predefined parametric criteria for location and severity, thus providing faster access to funds when they are needed most.

In addition, proceeds of the catastrophe bond will be invested in a range of sustainable development projects supported by the World Bank, earning it a “Sustainable Development Bond” label. Such projects aim to improve healthcare and education, reduce poverty, improve living standards, strengthen social security and pension systems, and protect and empower most vulnerable members of society. Swiss Re’s role in structuring this transaction supports our sustainability ambition to build societal resilience and provide sovereigns with climate risk cover and advice, while contributing to sustainable development.